Markets priced in a full-blown rescue of Eurozone by ECB
Markets started the day off with positive news from the ADP employment report, which showed that the private sector created over 200,000 jobs in the month of August, far greater than the 130,000 analysts had estimated. After gaining about ¾% by 10:00 AM, markets got another boost, this time from Europe. In prepared remarks, European Central Bank Chair Mario Draghi announced virtually unlimited bond purchases by the central bank to ensure that government debt yield for Greece, Spain, Italy and other troubled nations do not rise to dangerous levels. Draghi said the new bond-buying program would be aimed at the secondary market, and would "safeguard the monetary policy transmission in all countries in the euro zone area."
Additionally, markets were buoyed by stronger than expected economic data as both the ISM manufacturing report on Wednesday and yesterdays ISM no-manufacturing report showed surprising strength in the U.S. economy. By the time the closing bell rang, markets had gained nearly 2%, with stocks closing at their highest levels since January 2008.
Early morning trading (6:00 AM) is indicating an extension of yesterday’s rally, as the market continues to be encouraged by yesterdays ECB announcement and better than expected economic data from the U.S. Overnight, Germany released manufacturing, sales, and export data, all of which impressed observers as they also showed resilience in the face of the crisis and slowdown in Asia.
Markets appear to have priced in a full-blown rescue of Eurozone periphery nations by the ECB. Later today, the ECB will reveal the details of how it intends to execute and implement its latest bond-buying program. As all investors have learned over the past few years, when it comes to Europe, the Devil is in the Detail. As such, we believe that this “relief” rally could be very temporary and caution investors not to become overly bullish. We published an article yesterday in The Street.com – Take the Money and Run; which lays out our argument. here
One area of concern is the continued slowdown in copper demand from China. Yesterday, Copper was the only major commodity that slipped on news that demand from China may fall further. However, several analysts point out that this slowing demand is likely to be offset by increased power grid replacement and expansion in India, Thailand, and other parts of South-east Asia.
This morning’s official unemployment report and jobless figures will be released at 8:30 AM – given yesterdays strength on the ADP report, anything less than a strong beat of expectations could cause the market to retreat.
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