Global markets rally on ECB's new bond buying plan

European Central Bank (ECB) chairman Mario Draghi delivers on bond buying and keeps rates unchanged 

ECB announced the new bond buying program called Outright Monetary Transactions or 'OMT'. It includes unlimited purchases of bonds with period of 1-3 years, subject to conditionality.

There are no yield targets and decision to intervene is at ECB discretion. Countries will need to adhere to conditions set out for EFSF/ESM support.

IMF oversight is on conditionality but operation fully controlled by ECB. Purchases will be fully sterilized and seniority waived. ECB has terminated securities market program.

OMT will continue for as long as needed or countries default on conditions.

Germany reacts

German chancellor Angela Merkel opposed unlimited bond purchases but says can accept temporary bond buying.

German Central Bank chief says ‘purchases tantamount to financing governments by printing banknotes’.

Growth forecasts cut

ECB cut 2012 eurozone growth forecast from minus 0.1% in June to minus 0.6% - minus 0.2%.

Growth forecast range for 2013 lowered to -0.4% - +1.4% from 1% in June. Midpoint stands at +0.5%

OECD cut 2012 growth forecasts for G7, which includes sharp cut in Germany, France, Italy

Germany's growth forecast revised down to +0.8% from 1.2%; France down to 0.1% from +0.6% and Italy -2.4% versus -1.7%

US data positive

ADP employment for August increased to 2,01,000 from 1,73,000 in previous month, which was better-than-expected

Weekly Jobless claims went down to 3,65,000 versus 3,77,000 MoM, which too was better-than-expected

ISM Services for August increased to 53.7 versus 52.6 in previous month.

Investors should watch out for non farm payrolls today ahead of FOMC meet

Markets reaction

US markets on Friday: Dow Jones gained 1.9% at 13,292 while S&P 500 Index surged 2.04% to 1,432.1 and Nasdaq Composite was up 2.2%

European markets at close on Friday: CAC jumped 3.1% and DAX rallied 2.9% while FTSE rose 2.1%. Spain shot up 4.9% and Italy climbed 4.3%

Asian markets today morning: Kospi, Hang Seng, Shanghai, Nikkei and Taiwan Weighted gained 1-2%. Straits Times was up 0.7%. SGX Nifty advanced 0.9% to 5316

Currencies

Initially Euro rallied to a 2-month high of 1.265 against the US dollar after ECB kept rates unchanged

But Euro gave back to below 1.26 a dollar after ECB cut growth forecast for FY12 on Thursday

Today Euro inched back up at 1.263 against the US dollar

Dollar index was largely holding above 81 despite intraday dip below the same level yesterday.

Dollar Index hit 81.1 today morning on strength in US data.

Yen was weak at 78 to the US dollar today as against 78.4 to the US dollar yesterday

Commodities

Gold scaled above USD 1700 an ounce post Draghi bond buying.

Gold hit 6-month high at USD 1714 an ounce, which rose 0.5% to close above USD 1700 an ounce

Brent crude gained only 0.3% at USD 113.5 a barrel after seeing levels above USD 115 a barrel intraday yesterday.

Commodities fell today morning: Gold was marginally below USD 1700 an ounce. Copper was down 0.2% while Brent crude declined 0.7% to USD 112.7 a barrel

What to watch out for

German WPI

German Trade Data

German Industrial Production

UK Industrial Production

UK PPI

US Unemployment Rate

US Non Farm Payrolls