NY Session: Risk Off Amid ECB, EU Summit

Safe havens gained as risk sentiment tumbled after a knee jerk spike higher during ECB President Draghi’s press conference. The ECB cut rates by 25bps to 1.00% which was in line with the consensus. The rate corridor was maintained with the marginal deposit and lending rate each going down by 25bps as well. In the press conference, Draghi noted that the bank significantly reduced their growth forecasts for 2012 to -0.4% to 1.0% from +0.4% to 2.2% in September. The bank said it will provide two 3-year refinancing operations and eased collateral rules. The euro sank after Draghi said he didn’t signal more bond purchases and clarified that the bond purchases were limited and temporary in nature. EUR/USD briefly dipped below the 1.33 figure after trading as high as around 1.3460 and is currently around 1.3330.

With the ECB out of the way, the market focus will now shift to the EU Summit. Reports are emerging that Germany rejects common euro zone debt issuance and rejects running the EFSF and ESM simultaneously. This weighed on sentiment and sent stocks lower towards the end of the trading day. The Dow Jones Industrial Average finished the day lower by about -1.63% and the S&P 500 slumped by -2.11% to close out the session. Commodities were significantly lower as traders shunned risk with gold, silver and oil currently down by -1.97%, -2.84% and -2.56% respectively. U.S. 10-year Treasury yields shed 6 bps to move back below the 2% level (currently around 1.97%) as investors sought safety.

Economic data released out of North America included Canada housing figures and US labor data. U.S. weekly jobless claims were better than forecast with a drop to 381K from the prior week’s 404K. The 4-week moving average fell by 3K to 393.3K, a sign the labor market is slowly moving in the right direction. Canada’s housing starts were lower than forecast with a print of 181K in Nov. from the prior 209K (cons. 200K) and the Oct. new housing price index was in line with expectations at +0.2%. The Loonie was much weaker as a result of softer data, weak oil, and a tumble in equities. USD/CAD rallied to current levels of around 1.0220 and CAD/JPY plunged to current levels around the 76.00 figure.

There is top tier data scheduled for release in the upcoming Asia/Pacific session with Japan’s 3Q final GDP figures as well as China’s CPI and PPI figures for Nov. which are expected to show a continued slowing of inflation. In New Zealand, Nov. card spending and Dec. consumer confidence are due out.