Stocks Tumble on Potential Rate Move
US markets took a tumble overnight as the market digested the possibility of the Bank of Japan tweaking its policy today. A Nikkei report saying that the BOJ may let yields move higher than their existing caps spooked the market in the US session and looks set to follow into the Asian day. The Dow ended its 13-day winning run – the longest since 1987- closing down 0.67%, the S&P dropped 0.64% and the Nasdaq closed 0.55% in the red. The ECB raised 25bps as expected and data in the US once again came in stronger than expected with the GDP jumping to 2.4% q/q. The dollar jumped higher alongside treasury yields – the 10-year now above 4% and Oil once again gained ground.
ECB Raises 25bps but are they Finished
The European Central Bank raised interest rates by 25 basis points yesterday but the currency then dropped over 1% as traders looked at potential economic storm clouds on the horizon. There were mixed messages from ECB President Christine Lagarde as she kept the hawkish talk up on the fight against inflation but then advised that she felt they might not have much more ground to cover on that front. The consensus from the market was a more dovish outlook and the single currency tumbled. It does however feel that the tide is turning across the global central bank landscape and this will put more importance on key data releases over the next few months. If those numbers start to fall and let us not forget the recession in Germany, we could see the ECB turn dovish more quickly than other central banks – especially the Fed, where we once again had substantial numbers yesterday – this will give Euro bears a clear route back to parity.
Another Day Another Central Bank Decision
It has been a busy week for traders this week with a plethora of fresh data inputs and some major central bank updates and we are set to finish with a bang rather than a whimper. A report out on the Bank of Japan has already rocked markets and all eyes will be on Tokyo this morning in Asia to see if we get a historic end to the BOJ’s ultra loose policy. The European session is quiet on the data release front. Still, the New York Open see’s some key data releases in the form of the Canadian GDP number being released at the same time as the Fed’s favourite inflation gauge, the Core PCE Price Index as well as the Employment Cost Index – so traders won’t be getting much rest until that final bell at 5 pm New York time.
