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Round Up – Asian Markets & The ECB

James Boston
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Finally some welcome respite for Asian stocks as markets close higher for the first time in 5 days. The single exception being Japan’s Nikkei which posted another slight loss to finish down 0.2%.

Macroeconomic factors, including relative calm in emerging markets, have contributed to the broad Asian market bounce while domestic corporate earnings are weighing down Japan.

European markets have opened flat and the EURGBP and EURUSD pairs remain range bound. Positioning ahead of today’s European Central Bank (ECB) meeting has already taken place and markets are unlikely to move in any significant way ahead of the lunchtime ECB announcement.

The ECB is one of the few central banks around the globe that is still on a monetary easing footing. The US Fed, the Bank of England, most commodity lead countries and most emerging market countries have either begun to raise interest rates or at the very least ceased rate cuts in favor of a neutral approach.

The benchmark Eurozone rate stands at 0.25% which gives very little scope to the ECB to introduce a further cut. Markets have however priced in a reduction of 10 to 15bps today, obviously this reflects more the probability of a full quarter point cut as the ECB does not move in units smaller than a quarter percent. There is therefore approximately a 50% chance that the Eurozone will be facing 0% interest rates by this afternoon.

Rhetoric is however the key element to watch out for today, ECB head Mario Draghi will deliver a very well crafted statement in the afternoon and this will be micro analyzed by investors for clues to upcoming ECB actions. In particular the market will be looking for a sign as to how long the ECB will remain in loose monetary policy mode, a stance that is becoming increasingly difficult to defend in the face of global monetary tightening.

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