Financial market research and analysis

European equity markets kicked off stronger today, after a roller-coaster session on Thursday. The FTSE rallied more than 1% at the open and all sectors started in the green. Marks & Spencer (-0.59%) was the only stock to open in red after being downgraded to underperform from neutral at BoFAML.

Financials lead gains in London as their European peers rally across the Channel amid Draghi’s new monetary measures.
Barclays (+3.25%)
Royal Bank of Scotland (+3.07%)
Lloyds (+2.81%)
Standard Chartered (+2.74%)

Energy stocks are in good shape as WTI (+2.33%) extended gains to a fresh three-month high of $38.73%; the $40 level is right around the corner.

Miners made an upbeat start yet failed to keep up with the rally.
The retracement of BHP Billiton (+0.14%) share price is expected to remain limited at about the 100-day moving average (787p) on news that Samarco, joint venture with Brazil’s Vale, should restart production at its iron ore mine in Minas Gerais as soon as the start of 4Q. This would be less than a year after the tragic incident, which killed 19 people.

Old Mutual (+2.86%) is preparing to split into four man units – Old Mutual Emerging Markets, Old Mutual Wealth, Nedbank Group and OM Asset Management to unlock value. Having four separate units will allow each unit to access the capital markets for their own needs, and fund their respective businesses in respect to their idiosyncratic needs, business plans and growth targets.

The UK’s trade deficit widened to £3459 million in January. The pound smirked as data showed a sharper improvement in the non-EU terms, at a period when Brexit risks stand ready to shadow any sign of enthusiasm in the pound. Cable is in a better shape to fight back the 1.43/1.4320 offers before the closing bell.


Did the ECB misfire?

Again, the ECB left the table without sealing a solid deal with the market. But still, nobody can say that the ECB has not delivered enough after having cut all three rates, announced to expand the QE purchases by 20 billion euros to 80 billion euro per month and launched the TLTRO II starting from June 2016 to March 2017.

The only ‘bad news’ was that the rates would not go any lower. Then, followed the heavy sell-off.

Following the ECB storm yesterday, we woke up to a clearer sky. The risk sentiment is better. The European stocks are rebounding strongly before the weekly closing bell.

The ECB’s decision has been more about tackling the real sector, more foundational than a simple liquidity boost. This has been a new piece of information and markets are yet to digest it. Overall, we should keep in mind that despite the wild swings, this is tending to be an energy boost.

Peripheral bonds are leading the race today. European corporate credit risk fell as much as 13% yesterday, and is already another 5% lower at the time of writing.

The euro hit 1.1218 against the US dollar as Asian traders took over the rally; the pair is currently retracing gains toward the 1.1100 mark. A close above the 1.1067 (major 38.2% off the post-ECB dip) should keep the EURUSD in the bullish trend for a potential extension of gains to 1.1376 (Feb 11th high). Vanilla calls are supportive of the bull market above the 1.12 strike for today’s expiry.

The EURGBP rallied 2.55% off the post-decision dip (0.7652). Decent vanilla calls are expiring at 0.7775/0.7800 today and could give an additional boost to the cross. Below 0.7750, put options dominate.