ECB Offers No New Solutions, Reiterates Commitment
The markets are mixed in early trading, and it has been a wild ride already. In case you weren't watching the pre-markets let me tell you what happened. I woke up at 5:30 to watch the ECB announcement. Immediately after the ECB press release the Dow futures spike +100 points. But as more comments came out and Draghi began to speak, they quickly reversed and pretty soon were in negative territory. When I got to the office and the market opened, the Dow was down a pretty quick 100 points. That's a 200 point reversal from the pre-market highs.
And an equally big reversal happened in Europe. Europe's markets were higher ahead of the ECB announcement, but quickly moved to losses when investors didn't hear any big new policy announcements from the ECB. Spain has moved to a -2.7% loss on the day and Italy is down -3.0% as those markets head into the close.
So what was the big disappointment? First off, remember we have been saying that the market has been rallying on hopes of some new monetary easing from both the Fed and the ECB and that it was likely we could see a 'buy the rumor - sell the news' type reaction after the central bank announcements. Yesterday the Fed gave little new information and mostly reiterated its recent stance that has already been communicated to investors.
This morning the ECB mostly followed suit. The ECB kept interest rates unchanged at 0.75% and didn't offer any really new policy measures. He reiterated that countries need to go to the EFSF for assistance before the ECB can step in to help, but that once countries have done that the ECB could buy sovereign bonds directly in the market. He said they will look at non-conventional measures, but also didn't give any encouragement about the ESM getting a banking license anytime soon. He also said that the euro is "irreversible", so that talk about a breakup is misguided. (But that is what we would expect him to say)
The euro is also lower following the ECB news and the dollar index is higher. That is pressuring most commodities. Oil prices are under $88 and gold prices have broken back below $1600. Silver and copper prices are also lower.
Stocks rising on earnings: K, OMX, FSLR, GMCR, YELP, TWC
Stocks falling on earnings: ANF, UPL, PH
The 10-year yield is lower to 1.47%, failing to hold above the 1.50% level. And despite the early losses, the VIX is lower again to 18.15 (-4.2%).
Trading comment: The markets are down for a 4th straight day so far, but there are signs of encouragement. Lots of growth stocks on my screen are green, and the Nasdaq has pulled into positive territory as of this post. Tomorrow is the big monthly jobs report, which always has elevated volatility surrounding it. I'm not expecting a strong jobs number, but I don't think most people are. The ADP report was stronger than expected this week, but it isn't always the best leading indicator. In a nutshell, while I could see a short-term oversold bounce at any time, I think the lack of new initiatives by the Fed and the ECB will likely take the steam out of the sail of the markets that have been rallying in anticipation of hope. So I want to remain conservatively positioned for now.