Market update: A super dovish Draghi delivered, Nokia dropped 17%

27 Oct

by Tatár Mihály

 

Good Morning!

 

  • As forecasted here, Draghi put in maximal effort to deliver a dovish message: While bond purchases will be halved to 30 billion euros, with reinvestments, the amount is closer to 45 billion euros, and he emphasized that ’rates will remain low for an extended period of time, well past the horizon of the bond buying programme’. The resulting USD strengthening was massive – as said, everyone and their grandmother was long the euro -, EURUSD fell to 1.1620 (USDHUF 267, USDPLN 3.659, even Gold dropped to 1265 USD). The dovish message helped European stock markets as well (DAX +1.39%, MIB +1.61%, CAC +1.50%), with US indexes also somewhat advancing after high-flying Amazon and Twitter results (SPX +0.13%, Amazon +8.5%). Typically, US Pharmacy stocks crashed (some by 3% -5%), after learning the news that they will be Amazon’s next ’Whole Foods’ (meaning, Amazon moves into this industry as well). The uptrend in US yields also continued – remember that ’tax reform was dead in the water’ media line? – the 10Y yield spiked to 2.46%, pushing USD financing costs as well (3M Libor 1.375%).

 

  • Despite the strengthening Dollar, oil prices inched a bit further higher (WTI 52.80, Brent 59.40 USD), as Saudi Arabia’s Crown Prince Mohammed bin Salman backed the extenstion of OPEC-led output cuts and the market being full with Kurdistan-related rumours (President Barzani will resign and Iraqi airborne forces are preparing to take over Irbil and other key towns, Iraq is redirecting anti-ISIS ground forces towards Kurdish positions, to report just a few).

 

  • Nokia crashed a whopping 17% yesterday (that is -40% from the beginning of 2016), with the company’s dire third-quarter results and its prediction that a prolonged slump awaits the industry. The market typically doesn’t like lame excuses (the CEO complained about ’the sector being in the midst of multiple technology transitions’, instead of the obvious, the tough Asian competition and notorious investment timing issues), and even analysts were shocked enought to talk about ’a recovery in 2019’ (this means never-ever in analyst-speak).

 

Kind regards,

Mihály

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