The European Central Bank cut its benchmark lending rate to 0.15%, and became the first central bank ever to implement a negative interest rate on overnight funds that banks deposit with the ECB. Instead of earning a return on those billions, the banks will be charged 0.10% for leaving the money there.
(Over $2 trillion of QE money in the US that the Fed gave banks to lend out is sitting in overnight deposits back at the Fed, earning risk-free interest. Maybe Yellen should lower her excess deposits rate.)
The kicker this morning was ECB president Mario Draghi’s press conference, where he said that these measures were meant to target the “real economy” and not the banks. Determined to not let the European Union slide into a deflationary spiral like Japan did, he continued “If required, we will act swiftly with further monetary policy easing.” This has been taken to meant that outright Fed-style bond purchases are still on the table, if needed.
Precious metals jumped vertically after the press conference, with gold peaking at $1,258 and silver surging well over $19 before the initial euphoria passed. All metals are still higher this morning, after the ECB actions.
First-time jobless claims in the U.S. jumped by 8,000 people this week, with 312,000 first-time applications for unemployment.
U.S. stocks opened higher, despite a jump in first-time jobless claims.
Euro stocks rose on the ECB measures to fight deflation.
Japanese stocks closed higher, with the Nikkei near a 3-month high, but banking stocks drug the Hang Seng down. Shanghai closed higher, despite some market turmoil surrounding an investigation of whether copper and iron stockpiles were pledged as collateral for multiple loans.
Rumors persist that the crippling strike in South Africa’s platinum sector may be near a close. Mineworkers of the AMCU union have been on strike since January 23, plunging the entire national economy into contraction. Having not been paid for four months, food aid from relief organizations is being passed out in the towns and villages surrounding the mines. The strike, which has halted 40% of global platinum production, has cost over $2 billion in lost revenue, and nearly $1 billion in lost wages.