Banks to the rescue
It wasn’t totally unexpected but still the move made by the BoE took markets by surprise: it was sooner than expected (especially after decent PMIs for September) and it was bolder than expected (market saw a 50 rather than 75 bln GBP as the first increment). Consequently, the BoE stole some attention from the final ECB meeting with JCT at the helm. The ECB introduced long-term liquidity operations and announced purchases of asset-backed securities but details of those purchases will be announced (and probably worked out) only in November.
Anyway, the moves made by the banks (actually the move made by the BoE and expected to be made by the ECB) supported a general sentiment, especially as they followed a string of decent US data. Consequently there is a hope on the market that easing in Europe could boost market sentiment for longer. That could well happen if not uncertainty over the debt crisis because things do not seem to be moving here fast enough. What we learned yesterday is:
- Ecofin discussed a larger debt reduction “sponsored” by a private sector but there are no details (and will be probably hard to work out) – Finnish finance minister
- EFSF should be treated as a last resort, banks should try to raise capital on the market – Germany’s Merkel (imagine French banks raising capital on the market under current conditions…)
- Report on Greece might be ready on Oct 24th (much later than initially expected, suggesting that Europe wants more time to discuss restructuring options) – Junker
Unless some of that uncertainty is removed it might be hard for the market to move much higher, especially as the S&P500 is getting close to resistances.
OIL, AUDUSD – a rapid rebound
Oil prices and AUDUSD drew a very similar pattern as they both benefited from an improved market sentiment. We saw daily hammer candles at key supports (99,25 USD for Brent oil, 0,9370 for AUDUSD) on Tuesday, followed by bullish white candles. Nevertheless, we think that this is merely an upward correction. Oil faces a strong resistance around 115 USD and AUDUSD is facing resistances at 1,00 and 1,02. Both markets are primed to decline and the global economy faces hurdles within the next couple of months.
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Przemysław Kwiecień PhD, Chief Economist |
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