(16 AUGUST 2019) DAILY MARKET BRIEF 1：ECB’s Rehn sends the euro down, Jackson Hole in focus

After a rough week for equity investors and despite the fact that the level of fear remain elevated, some stability has return to financial markets. Equity futures are inching their way in positive territory as implied volatility measures slowly decrease. The German DAX is up 0.75%, the EuroSTOXX 50 0.85% and the FTSE hasn’t opened yet as the LSE took unscheduled holidays (technical issue). Safe haven assets are edging lower with the yellow metal sliding towards the $1,500 level. In the FX market, the Swiss franc and the Japanese yen are down 0.23% and 0.05% against the greenback to 0.9788 and 106.15, respectively. Finally, Bitcoin is currently fighting to maintain itself above the rising trend line that supported the rally initiated in May this year and currently trades around $9,890.

The single currency continued to move lower following ECB’s Rehn comments to the Wall Street Journal where he declared that the ECB is preparing “a very strong package” that should include both additional bond purchase and a cut in interest rates. He added that “When you’re working with financial markets, it’s often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker,” You’ll be warned, the ECB is in for the kill and bond yields will have no chance. For now, investors are expecting a cut of 0.1%, currently at -0.5%, and the restart of the quantitative program with €50bn per month of bond purchase. However, that was before Mr. Rehn comments. Now, the market is pricing a 60% chance of a 20bps cut and 40% of a 10bps cut. In addition, it wouldn’t be surprising if the ECB extend the scope of its QE by buying different assets such as… stocks. However, it is more likely that the ECB would end up extending the limit of 33% of issued amount outstanding per country.

Across the Atlantic, investors already started to look towards Jackson Hole, where the Fed’s annual symposium will be held between 22 and 24 August. Market participants will be keen to get fresh hints from Jerome Powell regarding the FOMC thinking ahead of the mid-September meeting. We believe that the Fed Chair wouldn’t miss the occasion to take a dovish stance, just like all the other central banks across the globe. Is QE4 on its way?

By Arnaud Masset