Daily Stock Market Update: Gains on Stimulus Hopes – Jan 22, 2016

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US and European markets ended on a positive note, as the prospect of additional stimulus from the European Central Bank revived risk appetite. While the ECB decided to keep monetary policy unchanged for the time being, Governor Mario Draghi explained during his press conference that they will not hesitate to act if necessary.

He explained that the economic situation has worsened since December and that they have enough monetary policy measures to implement in their next decision. Apart from that, George Soros mentioned in his testimony at the World Economic Forum in Davos that the Fed might be unlikely to hike rates again in this type of environment.

The Dow 30 index was up 115.94 points to 15,882.68 (+0.74%), the S&P 500 index climbed 9.66 points to 1,868.99 (+0.52%), and the Nasdaq lagged with a gain of 0.4 points to 4,472.1 (+0.01%). In Europe, the German DAX was up 182.52 points to 9,574.16 (+1.94%), the French CAC 40 rose 81.45 points to 4,206.40 (+1.97%), and the Euro Stoxx 50 was up 58.98 points to 2,941.57 (+2.05%).

Late bounce in crude oil prices

Another factor that boosted market sentiment was the rebound in oil prices after the OPEC lowered its oil production forecasts for the non-OPEC members. WTI crude oil recovered from the $28/barrel levels to test the $30/barrel mark while Brent crude oil bounced to $29.57/barrel, even as US crude oil stockpiles rose by 4 million barrels versus the projected 3.3 million increase.

With that, commodity prices and energy shares advanced towards the end of the trading session. Stocks in the S&P 500 Energy and Telecommunications sector chalked up around 2% in gains while shares in the Financials and Healthcare sectors lagged.

UK retail sales, euro zone PMI, and Canadian CPI next

Whether these risk-on flows could last until the end of the trading week remains to be seen as there are still several economic catalysts on deck. The UK retail sales report is up for release and a 0.1% drop in consumer spending is eyed, possibly underscoring how the low wage growth environment is weighing on financial confidence.

Meanwhile, the flash PMI readings from the euro zone’s largest economies such as Germany and France are likely to provide more clues as to whether the ECB would need to expand their easing program in March or not. Canada’s CPI and retail sales figures are also lined up, with analysts expecting to see a 0.4% drop in the country’s headline inflation reading.

 

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.