Thursday, December 4, 2014
The focus today is on the European Central Bank (ECB) with market participants looking for a clear signal of further monetary easing in the not-too-distant future. Mario Draghi has been more words than action thus far; we will see if market participants will be OK with more empty words in today’s presser.
On the home front, this morning’s positive Jobless Claims data will add to expectations of a strong labor market reading tomorrow. Consensus estimates for ‘headline’ November nonfarm payrolls remain at about 230K, but this week’s strong ISM surveys have likely pushed the whisper numbers north of that level.
The ECB’s version of quantitative easing thus far has been way too light relative to what the U.S. Fed and Japan’s BoJ have been doing. In essence, the ECB has been buying specific types of secured debt instruments and giving cheap loans to banks, in the hope that the banks will move ahead and pump more liquidity into the economy.
But it hasn’t really helped much thus far. The problem is that the secured bonds market simply isn’t deep enough and banks are understandably reluctant to freely lend at a time when they are trying to figure out optimum capital levels.
Market participants have all along been very clear that the ECB needed to do more on the asset purchases front. The holy grail of quantitative easing is for the central bank to buy government bonds – that’s what the U.S. Fed did and that’s what the BoJ is doing right now. This is the context in which to view today’s ECB meeting.
They weren’t expected to announce anything new or substantive, but the tone and substance of Mario Draghi’s press conference is to signal the start of government bond purchases in the first quarter of the year. This is the expectation that has been pushing down government bond yields and the exchange value of the common currency.
In corporate news, Sears Holdings (SHLD) reported a lower-than-expected loss and assured of its strong liquidity position to meet its obligations. Dollar General (DG) modestly missed estimates and lowered its guidance.
Sheraz Mian
Director of Research
Note: In order to get an email alert each time this author publishes a new article, click on the ‘Follow Author’ link at the bottom of the top-right box of links.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment