European Central Bank President Mario Draghi reduced the deposit rate to minus 0.10 percent from zero, making the institution the world’s first major central bank to use a negative rate. The central bank cut growth forecasts for 2014, while raising its target for euro-zone gross domestic product in 2015. A private report on payrolls yesterday indicated companies in the U.S. added fewer jobs than forecast in May.
Tomorrow’s report may show private payrolls, which exclude government agencies, increased 210,000 in May after a 273,000 gain in the month prior.
Equities: The E-mini S&P 500 (CME:ESM14) is up 11 points to 1936.75, after a brief morning dip. Tomorrow’s number may or may not have as big of an impact as today’s ECB negative-rate announcement is having. The next major profile target from yesterday’s trading has actually been reached today, which was 1936. How high can we go? The key level above is 1950. At the same time, we have some technical trend lines that could point to a rally to at least 1975, possibly 1985. We shall see what tomorrow’s jobs number brings.
Bonds: The 30-year bonds (CBOT:USU14) are up 9 ticks to 135’14. We believe Draghi’s announcement is indeed having a big impact on US markets, pushing both stock and bonds higher today. The bonds dipped below 135 today, but then found buyers to bring it to up on the day. The markets are obviously not just a reflection of direct economic data, they truly are deeply affected by the various global central banks’s policies. Today is a great example.
Currencies: The Euro (CME:E6M14) had a big dip today upon the ECB announcment, but then interestingly rallied strongly, and is now up 26 ticks to 136.25. We see key resistance levels at the 137.50 area. The Aussie is strong today, up 50 ticks to 93.20. This market seems to be in a somewhat bullish short term trend, thus we would not be surprised to see it head higher. The Pound (CME:B6M14) is also up today, higher by 56 ticks to 167.98. 168.50 is our next key resistance level.
Commodities: WTI crude (NYMEX:CLN14) has slid over the past week or so, and continues that trend today with the market down $.35 to $102.29. We would not be surprised to see WTI continue to head lower, possibly breaking down through $101. Soybeans (CBOT:SNQ14) are down $.14 to $14.02, and have a similar recent pattern as crude oil. We would not be surprised to see JUL14 soybeans try to break through $14 to the downside, and head to $13.80, maybe lower. AUG14 gold is up $10 to $1254, after finding a short term bottom at around $1240. It seems as though the ECB announcement really kickstarted today’s gold rally. We still believe that gold’s somewhat low volatility environment will persist.