Global Markets Overview – October 3, 2014

The ECB meeting was the highlight of overnight trade but investors had to wait until President Mario Draghi's press conference for some real direction. After sounding very aggressive and showing willingness to do whatever it takes to spur the economy in past weeks, investors interpreted Mario Draghi's language as less dovish - he failed to say that the committee is ready to adjust the size and composition of purchases. Analysts feel this was a step back from what Draghi's recent comments.

It was always clear the ECB had a real task on its hands keeping the doves appeased. For now, however, it seems a wait-and-see approach is the way forward for the ECB as they assess the impact of recently announced measures. The second allotment of the TLTROs is likely to be the next key event for the Eurozone and the uptake will really need to pick up this time.

The fact the ECB will start buying covered bonds this month, as well as asset-backed securities in Q4 should help sentiment. Additionally, Draghi also left the door open for QE - although some in the market feel this is still unlikely.

Euro reverses higher, equities slump

From a price-action perspective, the euro actually firmed following the meeting and press conference, while equities were sharply sold off. EUR/USD popped into the $1.2700 sell zone and is now coming under a bit of pressure.

While we saw a relief rally in the euro, I still feel structural issues and a determined ECB will see traders continue to sell into strength. As soon as European markets closed, sentiment improved in US trade with a better-than-expected unemployment claims reading helping to calm investors after the previous session sell-off. Focus now shifts to the US non-farm payrolls release where the market is expecting a strong bounce from August to over 200,000. Market consensus is at 215,000 and for the unemployment rate to remain steady at 6.1%. This puts the USD and its main crosses in focus with positioning likely to ramp up through Asian trade.

Weaker open for the ASX 200

Ahead of the local market open, we are calling the ASX 200 down 0.5% at 5270. This will see the market down 0.8% for the week. A risk off tone is likely to prevail early particularly after a fairly poor night for commodities. There will also continue to be a focus on banks with some investors looking to take advantage of recent weakness. Company news is limited, but Starpharma will be an interesting one to watch after recently completing a capital raising and yesterday announcing the rollout of its VivaGel product in conjunction with Ansell. Around the region, China returns to trade todaywith some fairly hefty losses tipped for the Hang Seng and Shanghai Composite at the open.

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