The year of the Draghi
The chase by Marty Cej:
The European Central Bank will determine the direction of global markets today, at least in the early going. The ECB declined to cut interest rates at 7:45 a.m. ET, leaving its benchmark rate at 0.75 percent and satisfying the expectations of half of the economists surveyed by Bloomberg News ahead of the decision. But today's decision is not a moment, but a process, like lunch in the warmer European countries, the ones that need the money, I mean. A month ago, ECB boss Mario Draghi promised to do whatever it takes to save the euro. He'll get a chance at 8:45 a.m. when the market expects him to announce a plan to purchase government bonds in maturities out to three years in a bid to lower borrowing costs for countries that enjoy particularly long lunches. Expectations are so strong that if Draghi doesn't announce the plan -- Monetary Outright Transactions, or MOT for short -- all the gains seen in Spanish and Italian bonds may be reversed within minutes; gold, which has topped $1,700 US for the first time since March, may slump and the euro's recent gains will evaporate alongside Draghi's credibility.
The ECB's rate decision came a short time after Sweden's Riksbank unexpectedly cut its benchmark rate in a bid to weaken the krona and spur exports. Earlier, the OECD cut its forecast for growth for six of the seven largest developed economies due to the euro-zone crisis. The forecast for Canadian growth in 2012 was cut to 1.9 percent from 2.2 percent while U.S. growth was lowered to 2.3 percent from 2.4 percent. Only Japan escaped the knife.
One story that bears closer examination today is an announcement that came from the Real Estate Board of Greater Vancouver late yesterday. Residential property sales tumbled 31 percent in August from the same month a year ago, dropped 21 percent from July and were nearly 40 percent below the 10-year average for the month of August. "Home sales this summer have been lower than we've seen for most of the past ten years, yet we continue to see relative stability when it comes to prices," Eugen Klein, REBGV president said, his hope palpable. The story is more complex than it appears on the surface, I think. It could be a function of the new mortgage rules, the near constant warnings from the Bank of Canada and Finance Minister, or perhaps it's a reflection of the slowdown in the Chinese economy, which is denting demand from overseas. The evidence is mostly anecdotal so we'll need to work hard at nailing down the facts and convincing analysis.
Jobs are a key to market sentiment today and will help establish expectations for the non-farm payrolls report Friday. Outplacement firm Challenger Gray & Christmas said U.S. companies announced 32,239 job cuts in August, a 20-month low, while payroll processing company ADP said U.S. companies added 201,000 new jobs in the month, topping the 140,000 expected by economists. Currently, economists expect to see the U.S. economy added 127,000 new non-farm jobs last month. The ADP data may prompt some to raise their forecasts ahead of tomorrow's release.
Now don't mess up, Mr. Draghi. One more misstep, sir, and we're sending Carney. And you won't like him when he's angry.