Euro reprieve before ECB meeting

GURU WISDOM

All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” — Peter Lynch
 

MARKETS

A technical and sentiment-based rebound in megacap tech stocks improved the mood across global markets. The Nasdaq and Dow Jones indices both bounced off their 50-day moving averages.

The sell-off had gotten extreme and was due a bounce. The stock market gains held up despite disappointing vaccine news from Oxford University and AstraZeneca, which paused its vaccine trial due to an unexplained illness in one of the participants. In addition Senate Republicans are tabling a ‘skinny’ $500million coronavirus bill that has no support in Congress. 

Germany’s Dax index put in an impressive 2% daily gain while the FTSE 100 pushed back over 6000. Asian markets slid on Wednesday led lower by tech but look set for a firmer start on Thursday.

Recent strength in the US dollar paused amid the improved market sentiment, allowing both the pound and euro to pickup. The euro got an extra lift in the lead up to today’s ECB meeting.

The price of oil steadied from its recent steep declines with Brent crude oil closing back over $40 per barrel having fell through the price barrier for the first time in 2 ½ months yesterday. 
 

ECB Preview

ECB officials have become more confident in their economic forecasts according to a report from Bloomberg. The report contributed to a rebound in EUR/USD back over 1.18. It would suggest the central bankers don’t foresee extra risk that might justify further stimulus. With more data now available and in the knowledge that the European Union has agreed the rescue fund, economists in Europe should naturally feel a bit more at ease.

The latest economic projections from the ECB are not expected to show a much brighter outlook for the economy nor are they expected to worsen. Little-changed forecasts will give the ECB the headroom to wait and see on its current stimulus. However, should the ECB opt to sit on the sidelines and President Christine Lagarde offer no guidance on future policy change, it will have to live with a higher euro, which chief economist Philip Lane said “matters” the other week.