Stocks bounce back on dovish Draghi, oil slips further

European stocks were rebounding strongly shortly after midday on the back of dovish remarks from European Central Bank governor Mario Draghi over the weekend and after the large gains seen on Wall Street on Friday, with interest rate-sensitive stocks in the lead.

As of 12:47, the benchmark DJ Stoxx 600 was 1.58% higher to 375.44, alonsgside an advance of 2.21% in the Dax-30 to 10,989.60.

The largest gains within the latter were to be seen in Real Estate (2.51%), Health Care (2.33%), Auto Parts (2.23%) and Food and Beverage shares (2.02%).

Speaking on Friday afternoon, the ECB’s chief said there was no limit to what euro area policymakers could do to hit their inflation targets. “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate,” Draghi reportedly said.

Some market commentary linked his remarks to Monday’s 0.62% retreat in the euro/dollar to 1.0810.

On 3 December the ECB’s governing council announced an extension to the end-date for their bond buying programme, possibly to the relief of policymakers at the US Fed.

However, investors where underwhelmed and rushed to close short positions against the single currency, triggering an enormous intra-day spike which sent it above 1.09 by the close of trading versus just above the 1.05 mark it had reached just before Draghi’s press conference that day.

According to a report from Reuters citing sources familiar with the discussions, and dated 5 December, Draghi’s and ECB chief economist Peter Praet’s dovishness in the days and weeks ahead of the GC meeting backfired.

"Draghi raised expectations too high, on purpose, and attempted to paint the Governing Council into a corner. This was problematic and he
was criticized for this by several governors in private," the source said.

In parallel, front month West Texas crude futures were down by 2.05% to $39.18 in NYMEX trading, following what some observers described as a “chaotic” meeting of the Organisation of Petroleum Exporting Countries, also on Friday.

The US dollar was 1.52% stronger versus Norway’s – one of the world’s largest oil producers - krone on Monday, changing hands at 8.6411.

OPEC’s meeting, which lasted for seven hours, instead of the four which had been scheduled, roiled oil markets, with West Texas crude futures registering a total intraday swing of 5.7%.

Meanwhile, and in the industrial metals space, earlier on Monday iron ore futures fell through the $40 per metric tonne for the first time since at least 2009.

As of 12:50 three-month copper futures were edging 0.3% lower to $4,596.50 per metric tonne on the LME.