Should The ECB Cut Rates?
The market is slightly higher in early trading, but the S&P 500 is still not back above its 200-day average. The 200-day resides near 1285. The SPX briefly bumped its head at 1285 this morning before pulling back. So that's a level bulls would like to see recaptured by the close today.
I'm glad we didn't have a big up open in the market, since that often is just a setup for a failed rally attempt. I would rather see the markets open flat and then build some strength into the close. We shall see. There is a teleconference today between the G-7 finance ministers who will discuss eurozone conditions. But there is some confusion as to whether the details from the call will be released.
Tomorrow is the latest announcement from the ECB. Some believe they should cut interest rates, while others think that it won't help. I still find it odd that the ECB is at 1.00% and our Fed is at basically 0%. China has cut rates, Australia cut rates today, I think the ECB should cut rates also. I don't think it will have a huge effect but it could help at the margin.
In economic news, the ISM Services index for May came in better than expected at 53.7, which is higher than last month's reading of 53.5. In Europe, the eurozone services PMI improved a touch to 46.7 for April. However, retail sales for the region fell during April by 1.0%.
The dollar is up again today vs. the euro, but it isn't weighing on commodities as much as usual. Oil prices are a little higher near $84.40 and gold prices are up to $1619. Copper prices are lower.
Asian markets were generally higher overnight. The 10-year is bouncing a little more to 1.56%. And the VIX fell back below the 25.0 level but is currently bouncing back above it. Bulls are hoping for a VIX close below that 25 level.
Trading comment: Yesterday's action wasn't great, but it wasn't that bad either. The market was able to erase its intraday losses and close flat. Today the market is mostly hanging in so far also. I think a lot of folks are waiting for some sign out of Europe that hints at their next policy response. Its difficult to see our markets held hostage like this to Europe, but as the old saying goes "you have to trade the market as it is, and not how you wish it to be". Small and mid-cap stocks are outperforming so far this morning. And financials are the biggest sector leader so far. So there is potential for today to shape up positively.