Dovish Central Banks and Solid Earnings Keep Stocks Buoyed

European stock markets mostly down, after paring early losses. Following the dovish outlook of the ECB, stocks shot higher, and the combination of dovish guidance and strong U.S. earnings has helped lift equities to fresh all-time highs.  Robust economic data releases underpinned the EUR, which in turn weighed on equity markets, which tried to escape negative leads out of Asia, where indices trended lower in sluggish trading. U.S. tax reform developments remain in focus and disappointing manufacturing data out of China did little to boost sentiment. U.S. stock futures are mostly down, as are oil prices, ahead of this evenings API inventory report crude is printing at 56.50 per barrel.

Dovish Central Banks Keep Riskier Assets Buoyed

There continue to be two themes that are driving market prices. The first is central banks sentiment. The ECB’s Draghi says that forward guidance now full policy instrument. Draghi said at a central bankers meeting today that the forward guidance has proved to be successful and has now evolved into a “full-fledged monetary policy instrument”. BoE’s Carney meanwhile stressed that different channels are needed to communicate successfully, while Fed’s Yellen stressed that central bank guidance should be conditional on the outlook and that for the Fed the appropriate path depends on expectations about what the medium-term outlook is so that the Fed’s expectations for appropriate policy evolves over time in line with the outlook. What we can gather from these comments is that we need to keenly watch was central bankers are saying as well as what they are doing.

While stable growth is not going to blow investors away, the in-line results produced in the Eurozone should provide a decent backdrop to keep riskier assets on an upward trajectory. Eurozone Q3 GDP was confirmed at 0.6% quarter over quarter, in line with expectations and the initial estimate. There still is no full breakdown, but Germany’s stats office reported a strong contribution from external demand and net exports. The same is likely to hold for the Eurozone as a whole. Indeed, industrial production data, released at the same time, showed production down -0.6% month over month and up 1.1% quarter over quarter, with the latter a slight deceleration from the 1.2% quarter over quarter reported for the second quarter.

The Dow in the U.S. has felt the brunt of poor results from General Electric. This followed GE’s 50% dividend cut, weaker guidance, and profit-based incentives by business unit, which were initially a hit with investors. Despite this negative reaction from one of the most well know companies stocks in the U.S. are somehow holding up.