Daily Agenda: Markets Shaken by Draghi’s Modest Move

European stocks and sovereign debt sell off after ECB easing underwhelms; BTG Pactual secures a fresh credit line; Massey CEO convicted.

ECB Headquarters In Frankfurt As Mario Draghi Unveils Stimulus Measures

The euro currency symbol sits on a sign outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, on Thursday, Dec. 3, 2015. European stocks extended losses, following their biggest slide since August yesterday after European Central Bank President Mario Draghi unveiled stimulus measures that fell short of market expectations. Photographer: Jasper Juinen/Bloomberg

Jasper Juinen/Bloomberg

Yesterday’s announcement by the European Central Bank was largely received with disappointment by equity and sovereign-debt markets, with German ten-year treasury yields spiking to the highest level in a month, reaching 0.7 percent as the euro rallied. After a month of strong rhetoric from ECB president Mario Draghi, the relatively modest increase in monthly asset purchases proved underwhelming to markets expecting more. Meanwhile, in her second day of testimony on Capitol Hill, Federal Reserve Chair Janet Yellen made the clear case for a rate hike in the coming Federal Open Market Committee meeting while emphasizing that any increases will be a gradual process.

Payrolls swell by more than forecast. U.S. employment data released today by the Department of Labor revealed a robust job market in November. Nonfarm payrolls expanded by 211,000 beating consensus forecasts while the headline unemployment remained unchanged at 5 percent, a seven year low. October payrolls were revived higher to 298,000 versus a prior 271,000.

Iran will not support production cuts. Public comments by Iran’s Oil Minister Bijan Namdar Zanganeh at today’s meeting of the Organization of Petroleum Exporting Countries in Vienna sent a strong signal that his nation will not support production cuts sought by several member states. With state coffers impoverished by low oil prices Venezuela, Ecuador and Algeria had advocated for moves to reduce supplies.

European regulators drop swaps inquiry. Today the European Commission announced that it has ended a multiyear investigation into possible manipulation in credit default swaps markets and because of lack of evidence, has declined to bring action against over ten primary dealer banks. Ongoing investigations by the Commission into data providers and industry organization the International Swaps and Derivatives Association will continue.

CEO convicted over mine explosion. Former Massey Energy CEO Don Blankenship was convicted yesterday of conspiracy to circumvent federal mine safety regulations after 29 employees died in a 2010 explosion. The case marks the first time a CEO has been convicted for violating workplace-safety laws.

Lifeline for BTG Pactual. Today Sao Paulo–based investment bank Grupo BTG Pactual announced it had secured a $1.6 billion credit facility from Fundo Garantidor de Creditos as it struggles to survive in the wake of its founder’s arrest. The investment bank plans to sell assets as it attempts to further shore up its capital.


Portfolio Perspective: Draghi has Overpromised — Patrick O’Donnell, Aberdeen Asset Management

Draghi has over-promised and underdelivered. Markets won’t be particularly impressed. Everyone was expecting Draghi to be the white knight for Europe once again and he hasn’t really showed up. Today’s measures amount to tinkering around the edges. They may help the European economy a bit, particularly signalling that excess liquidity and therefore accommodative monetary policy will last for even longer. But if the European Central Bank isn’t going to do more preemptive measures then it is even more important that European politicians get on with reforming their economies. Europe’s economy relies on trade and the global outlook for that is pretty dire. Today’s measures buy European politicians a bit of time but are no panacea. Unfortunately, very few European leaders have the stomach to fight for the reforms their countries need.

Patrick O’Donnell is an investment manager at Aberdeen Asset Management.