Market Snap: U.S. markets were closed Monday for Martin Luther King Day. At the European close on Monday, the FTSE 100 was up 0.54%, the Dax up 0.73% and the Stoxx Europe 600 up 0.2%. At 1:15 p.m. ET, Nymex crude oil down 1.97% at $48.15. Gold down 0.02% at $1,276.60/ounce.
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How We Got Here: With U.S. markets closed Monday for the Martin Luther King Day holiday, there was plenty to focus on in a fast-changing Europe, where expectations for quantitative easing have heaped pressure on other policymakers to act.
After last week's shock move by the Swiss central bank, the Swiss franc remained pinned at sky-high levels, sticking to parity with the euro, a level Credit Suisse economists said could remain for at least 12 months. In an aftershock, the Danish Central Bank on Monday became the latest European country to cut its interest rates as the bank attempted to dampen investor interest in the Danish krone. The reason is that the European Central Bank's quantitative easing plan, widely expected to be put into action on Thursday, will weaken the euro. That's expected to make currencies such as the Swiss franc and Danish Krone especially alluring. One strategist said she wouldn't be surprised if Denmark acted again on Thursday. And Neil Mellor, a strategist at BNY Mellon in London, declared: "This is currency wars."
And there was further news on QE. While the ECB likes to guard its independence from governments, France's President François Hollande nevertheless surprised with a speech at the Élysée Palace where he reinforced the notion that the ECB will act this week.
On Tuesday, attention will turn to China, which releases GDP growth for the fourth quarter. It's expected to show growth of 7.2% over the year, down from the third quarter's 7.3%. Those numbers are startling by most global measures, but China's growth is slowing. If figures come in as expected, few will worry, but lower growth than this will spark worries about threats to global growth. Premier Li already said Monday that the economy continues to face downward pressure.
Eyes will also be peeled to see the second-day effect of regulators' move to clamp down on margin lending in China, a move that caused a selloff on Monday. The move came just days after markets were shaken by highly leverage bets on the Swiss franc, which caused substantial pain for brokerages whose clients could no longer meet their commitments.
Coming Up: China 10 a.m. Beijing: Fourth quarter GDP release, expected +7.2% on the year vs third quarter's 7.3%; December industrial output, expected +7.5%, up from November's 7.2%; December fixed assets investment, expected +15.7% on the year vs. 15.8% in November, and December retail sales.
From The Wall Street Journal
Li Adds to Speculation China May Miss Growth Target : China's economy faces continued downward pressure this year, Premier Li Keqiang said Monday at an official work meeting ahead of the government's much-watched release of its fourth quarter and 2014 economic growth results.
Regulatory Crackdown Hits China Shares: A mountain of debt built up by Chinese investors eager to cash in on the soaring stock market crumbled, sending the stock market down 7.7%, its worst day in six years.
Swiss Franc Remains High: The Swiss franc remained pinned at sky-high levels, hovering around one-to-one against the euro after last week's shock decision by the Swiss National Bank to allow its currency to climb.
Hollande: ECB Will Decide to Buy Government Debt Thursday: French President François Hollande said the ECB will decide to buy government debt later this week, reinforcing expectations the institution will follow other major central banks into so-called quantitative easing.
Denmark Cuts Interest Rates: Denmark became the latest European country to cut its interest rates as it attempts to dampen investor interest in the Danish krone.
Soaring Franc Creates Bonanza in Stores: Shoppers in Switzerland are suddenly getting discounts on everything from vegetables to party dresses--and even flocking to border towns in Germany to take advantage of their improved buying power.
From MoneyBeat
Everything You Ever Wanted to Know About European QE (But Were Too Afraid to Ask): The drumbeat's getting louder. Expectations that the European Central Bank will launch quantitative easing at its policy meeting Thursday have reached fever pitch amid speeches, rumors and leaks, not to mention the Swiss National Bank's shock move to unhitch its currency from the euro. Failure to deliver would be a disaster, plenty of people say.
Copper Finds a Friend in Morgan Stanley: It's when you're down that you know who your friends are. Copper's sharp decline to a five-and-a-half-year low on Wednesday prompted an outflow of negative sentiment. Furthermore, in the wake of oil prices slipping lower, some market participants have been comparing the trajectory of the red metal with that of black gold.
World Week Ahead: Key ECB Meeting to Pose Test of Central Bank Unity, Power: One event looms above all others in this week's macro calendar: the European Central Bank's policy meeting Thursday. Seen as a critical test of President Mario Draghi's 2012 "whatever it takes" pledge to save the eurozone and of the ECB's capacity for consensus, the meeting is expected to deliver a massive program for buying the bonds of eurozone governments. The hope is that this long delayed "quantitative easing" strategy will spur growth, kill a deflationary threat and encourage hiring across Europe.
How Low Can Oil Go? And When's It Going Back Up?: What a difference a year makes. In January 2014, Goldman Sachs said it did not "expect a material collapse in oil prices," citing Saudi Arabia's preference for prices of around $100 per barrel, and the country's position on being ready to cut production to support those levels. One year later, crude prices are hovering around $50 a barrel.
Denmark's Surprise Rate Cut -- The Reactions: Call it an aftershock of the Swiss National Bank's move if you like. In a surprise move, Denmark's central bank Monday cut its interest rates to dampen investor interest in the Danish krone ahead of a closely watched European Central Bank meeting Thursday.
About Those Swiss Market Forecasts...: That ripping sound you can hear is analysts tearing up their Swiss franc forecasts. (The loud bump last Thursday was the sound of thousands of jaws hitting the floor.)
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(END) Dow Jones Newswires
January 19, 2015 18:25 ET (23:25 GMT)
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