Markets Stabilize After Dovish Comments from Central Bankers

Stocks rebounded with oil while Treasuries sold off 1-4 bps across the curve after dovish comments from ECB President Mario Draghi and Chinese Vice President Li Yuanchao.  The ECB kept monetary policy unchanged at record lows, and indicated that additional stimulus measures are very much on the table for the March meeting.  Already in the midst of a 1.5 trillion euro bond purchasing program, Draghi stated “the credibility of the ECB would be harmed if we weren’t ready to revise the monetary-policy stance” in light of increasing downside risks to the global economy.  During the press conference, Draghi emphasized the impact of the fall in oil, which has weighed on consumer prices and made it difficult for the Eurozone to reach the ECB’s inflation targets.  Draghi declined to comment on what additional measures the ECB could take.  The euro fell against most major currencies in response.

Speaking at the World Economic Forum in Davos, China’s Vice President Li addressed the recent volatility his country’s financial markets have experienced.  Li said China has no intention to devalue the yuan and that recent fluctuations in the currency have been the result of “market forces”, not government manipulation.  He also vowed to keep intervening in the stock market to help the general population of investors and discourage speculators.  Li acknowledged the need to make Chinese markets more dynamic while also boosting regulation.

In the US, data showed initial jobless claims increased to 293,000 last week, the highest level since July.  Economists were expecting a decline to 278,000.  While a prolonged uptick in new layoffs would be a cause for concern, weekly claims data can be volatile and this one report may not actually be indicative of a true slowing labor market.  Despite the uptick, claims remained below the 300,000 mark for the 45th consecutive week, extending the longest such stretch since the early 1970s.