Daily Market Color

Markets React to ECB Stimulus and Draghi Comments

US stocks fell with their European counterparts while Treasuries sold off across the curve as markets reacted to the European Central Bank’s much-anticipated stimulus announcement today.  Stocks initially jumped higher after ECB President Draghi announced further cuts to three key interest rates and increased the pace and scope of the bond-buying program to 80 billion euros per month including corporates, but enthusiasm waned during the subsequent press conference.  Markets honed in on Draghi’s comment that he doesn’t anticipate cutting rates further, which disappointed equity investors who were hoping the spigot would remain open.  The value of the Euro initially fell vis a vis other currencies following the announcement, only to then reverse course and surge up 4% from its lows vs. the U.S. Dollar.

Meanwhile, US fundamentals continued to strengthen ahead of next week’s FOMC meeting.  The number of Americans filing for jobless claims fell to the lowest level since October, the latest sign that a firming labor market could continue to propel the US economy.  Claims declined 18,000 to a seasonally adjusted 259,000, easily beating the 275,000 analysts were expecting.  Claims have remained below the 300,000 threshold for a year now, which is commonly associated with a healthy labor market.  The Fed still is not expected to raise rates at its meeting next week, but a truly data dependent Fed is certainly taking note of the recent strength in labor data. 
There are no scheduled Fed speakers due to the blackout period ahead of next week’s meeting.  The US Treasury auctioned $12 billion 30-year notes this afternoon.  U.S yields are generally up 3 to 5 basis points across the curve from yesterday’s close.

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