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Thursday, January 22, 2015

STOCKS RALLY AFTER THE ECB: Here's What You Need To Know

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January 22, 2015

Stocks staged a huge rally on Thursday after the European Central Bank announced it would start a long-anticipated quantitative easing program to stave off deflation in the eurozone.

First, the scoreboard:

Dow: 17,813.98, +259.7, (+1.5%)
S&P 500: 2,063.15, +31, (+1.5%)
Nasdaq: 4,750.4, +83,(+1.8%)

And now, the top stories on Thursday:

1. Thursday was all about the ECB. The ECB announced on Thursday that starting in March it will purchase €60 billion of bonds per month until September 2016, more than the €50 billion that was expected after reports leaking the amount surfaced on Wednesday. ECB president Mario Draghi said a "large majority" of the ECB board was in favor of the package, but did not make it sound like a unanimous decision from his comments.

2. And while much was made of the per-month amount of purchases exceeding expectations, Business Insider's Tomas Hirst argues that the most important sentence in the ECB's statement was that it would continue purchases, "until [the ECB sees] a sustained adjustment in the path of inflation." In short, as Hirst writes, the ECB on Thursday announced an open-ended commitment to purchasing assets until inflation picks up. The ECB, like the Fed, has a mandate for "price stability," and is targeting 2% inflation. Currently, year-on-year inflation in the ECB is running at around 0.4% and is expected to fall as the price of oil has cratered in the last several months.

3. Also in central bank news, the Danmarks Nationalbank, the Danish central bank, lowered its main deposit rate to -0.35% from -0.2% in response to the ECB's announcement. The Danmarks Nationalbank is currently the only European central bank maintaining its currency peg against the euro after the Swiss National Bank last week abandoned its peg as the devaluation of the euro made this level prohibitive to continue targeting.

4. In the US, the weekly report on initial jobless claims fell to 310,000 from last week's revised level of 317,000, though this was still higher than the 300,000 that was expected. In a note following the report, Ian Shepherdson at Pantheon Macro said that seasonal adjustments are likely still impacting the number, and that the trend in claims is still near 290,000.

5. Following the ECB's announcement, the euro fell to an 11-year low against the US dollar, falling below 1.14 to as low as 1.1365. A year ago, the euro was worth around 1.37 to the dollar. Thursday's gains in US stocks also pushed them back into the green for the year.

6. Earnings season is kicking into high gear, and next week we will get one of the most anticipated reports on Wall Street: Apple. In a note to clients on Thursday, top Apple analyst Gene Munster of Piper Jaffray outlined the five things Apple needs to focus on, in order: iPhone, iOS, Apple Watch, Mac, and Emerging Products. So, it is simply all about iPhone.

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