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While you were sleeping: ECB, China signal support

Friday 22nd January 2016

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Equities on both sides of the Atlantic rebounded after European Central Bank president Mario Draghi as well as China’s Vice President Li Yuanchao flagged a readiness to support economic growth and financial markets. 

Draghi suggested the ECB might add monetary stimulus as soon as the central bank’s next policy meeting in March. 

“In this environment, euro-area inflation dynamics also continue to be weaker than expected," Draghi told reporters in Frankfurt at the end of a policy meeting. "It will therefore be necessary to review and possibly reconsider our monetary policy stance at our next meeting in early March, when the new staff macroeconomic projections become available which will also cover the years to 2018." 

Meanwhile, China also signalled it will keep doing what’s necessary to stem a slide in its stock market. Calling the country’s market “not yet mature,” China’s Vice President Li Yuanchao told Bloomberg that the government would boost regulation in an effort to avoid too much volatility.

“An excessively fluctuating market is a market of speculation where only the few will gain the most benefit when most people suffer,” Li said in an interview with Bloomberg in Davos, Switzerland. “The Chinese government is going to look after the interests of most of the people, most of the investors.”

Wall Street moved higher. In 13.10pm trading in New York, the Dow Jones Industrial Average rallied 1.6 percent, while the Nasdaq Composite Index climbed 1.2 percent. In 12.54pm trading, the Standard & Poor’s 500 Index advanced 1.2 percent.

Gains in shares of Home Depot and those of Verizon Communications, last up 4.2 percent and 3.7 percent respectively, led the Dow higher.

In Europe, the Stoxx 600 Index finished the day with a 1.9 percent increase from the previous close. The UK’s FTSE 100 Index added 1.8 percent, Germany’s DAX Index rose 1.9 percent, while France’s CAC 40 Index climbed 2 percent.

“Draghi was pretty clear that further easing in March is very likely,” Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen, told Bloomberg. “While a dovish ECB is one of the ingredients markets were looking for, on its own it’s still not enough to really improve sentiment. It needs to be accompanied by a statement from the Fed that they will not be hiking four times this year. But at least we can be a little more optimistic.”

US Federal Reserve policy makers will start a regularly scheduled two-day meeting on Tuesday.

The latest US jobs data were disappointing. Jobless claims unexpectedly rose, increasing 10,000 to a seasonally adjusted 293,000 for the week ended January 16.

The four-week moving average of claims increased 6,500 to 285,000 last week, the highest reading since mid-April.

“Our first threshold of concern on payrolls would be a four-week average above 325,000, which would signal to us a significant pickup in layoff activity,” John Ryding, chief economist at RDQ Economics in New York, told Reuters. "At this point, therefore, the rise in claims is not a concern to us, but we will be watching this data closely over the next few weeks."

Separately, the Philadelphia Fed’s general activity index climbed to minus 3.5 in January, up from a reading of minus 10.2 in December.

Oil also recovered, though analysts warned gains might be short-lived. Benchmark Brent futures for March delivery traded at US$29.45 a barrel at about noon in New York, while US crude rose traded at US$29.80 per barrel.

“The fundamentals are still weak and you still have worries about economic growth and its impact on fuel demand, so this is probably a sign that things have been overdone more than anything else,” Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut, told Reuters.

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