ECB INACTION CAUSES SELLING IN EUROPE -- OIL PRODUCERS LIKE CANADA SUFFER BIGGER LOSSES -- CANADIAN DOLLAR WEAKENS WITH OIL -- CHINA RALLY MAY FUELED BY FALLING OIL -- S&P 500 SUFFERS MINOR SETBACK FROM OVERBOUGHT CONDITION
ECB PUSHES MORE EASING INTO NEXT YEAR ... Mario Draghi announced today that the ECB would wait until the first quarter to consider additional monetary easing. That decision disappointed those who were hoping for quicker action. At the same time, he downgraded prospects for eurozone growth and inflation. Bond prices sold off slightly and the Euro bounced on the delayed action. The biggest negative reaction came from eurozone stocks which sold off. Chart 1 shows the Dow Jones Germany Stock Index falling more than -1% today. France lost -1.5%, Italy -2.7%, and Spain -2.3%. European selling appears to have caused modest selling in the U.S. At the same time, energy stocks lost more than 1% as energy prices fell again. Crude oil fell 1%, while natural gas lost 4%. Airlines were the day's biggest winners on falling fuel costs.
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Chart 1
CANADIAN STOCKS FALL HARD... The daily bars in Chart 2 show the TSX Composite Index losing nearly 2% today. The biggest losses came in its energy sector. Canadian stocks have been among those energy producers who have been negatively impacted by falling prices. The Canadian Dollar also lost ground. Chart 3 shows a close correlation between falling oil prices and the loonie since early July. Other energy producers like Brazil and Russian also lost ground.
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Chart 2
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Chart 3
CHINESE STOCK CONTINUE TO SOAR... The Dow Jones China Broad Market Index climbed more than 3% today to reach another three year high. Chart 4 shows that the rally in Chinese shares took off in early July just as crude oil was peaking. China is an importer of crude oil and stands to benefit from falling prices. The same is true of Japan which hit another seven-year high today.
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Chart 4
S&P 500 PULLS BACK ... U.S. stocks saw minor profit-taking today. Chart 5 shows the S&P 500 losing a modest -0.12%. The SPX is struggling with a short-term overbought condition measured by the 14-day RSI line (top of chart). Its trend, however, is still up as measured by its (green) 20-day average. Initial chart support is seen at Monday's intra-day low (2049), with more substantial support along its September intra-day peak (2019). U.S. stocks recovered lost ground in afternoon trading on reports that the ECB was considering monetary stimulus during the month of January.
