The equity markets have eliminated many doubts which existed among a few people during this year with a series of a record closes. This optimism is mainly due to the presence of low interest rates and availability of cheap money. The recent drop in the fuel prices has also boosted the consumer confidence who are not afraid to spend more. Nevertheless, the ultimate award could be given to the expectations which are breathing on the hopes that it is the European Central bank’s turn to step up and unleash more measures to ignite the growth in the region.
Investors have heavily bought into the idea of further easing coming from the ECB which has pushed the yield of certain countries within the eurozone where the unemployment is still stubbornly high, for example Spain’s 10-Year yield has fallen below the 2% level. If Spanish ten year can fall to this level, this makes you think how far the 10 year yield for the German bonds can go. It is not difficult to think of a scenario where the German 10-Year bond yield can fall even lower than the Japanese 10-Year bond yield.
However, traders should not emphasise too much on Mr Draghi’s speech delivered on Friday because there was a clear clash of buying the sovereign bond’s idea and for the need of more QE when some other members of the ECB delivered their speeches yesterday. The economic docket does tell us that we do have an important peace of data to be released today which can help us to understand the stronger party in the above argument. The full break down of the German GDP will be released this morning and interesting element of this GDP report will be how the personal consumption within the country is holding up along with the business confidence. A positive reading on both could give Bundsbank chief Jens Weidmann, more leverage to stand against the idea of buying the sovereign bonds. Furthermore, we also have OECD releasing their latest outlook on various European countries today which could shape up some powerful argument for the president of the ECB, Mr Draghi.
US futures are also trading higher after closing the equity market at their record close last night. However, things could change fairly very rapidly if we do get a devastating GDP reading for the country which is also due this afternoon. The forecast is for a lower of 3.3% from its previous reading of 3.5%. But, let’s not forget the consumer confidence number which will dictate more current situation of the economy and this could over weight on the sentiment.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam