Thursday, September 13, 2012

The QE Conundrum

Global markets were mixed overnight as investors around the world await today's FOMC decision and whether or not the Fed will initiate more quantitative easing (QE) measures in the near-term.  Many strategists have said the anticipation of more QE is the reason that global markets have been rallying and if we don't get any there could be some disappointment.

I have been on record as saying I don't think the odds are as high as everyone says, considering the stock market is at new highs and the Fed might like to keep some powder dry for when we need it more.  We still have the economy slowing and the fiscal cliff ahead of us.  For the near-term, the ECB seems to have done some of the heavy lifting with its recent bond purchase programs.

The FOMC statement will be released at 12:30 ET with the economic projections released at 2:00 ET followed by Bernanke's press conference.

There hasn't been a lot of market moving news this morning. US producer prices rose more than expected by 1.7% in August vs. the 1.2% expected.

Overnight in Asia, several central banks held interest rates steady.  Indonesia held at 5.75%, New Zealand at 2.5%, Phillipines 3.75%, and S. Korea held at 3.00%.  Asian markets finished mixed.

In Europe, markets are also mixed to lower this morning.  German Finance Minister continues to try to pour cold water on recent ECB announcements.  He said that he does not believe the ESM can get a bank license.

The dollar is slightly lower today and commodities are mixed.  Oil prices are higher to $98.20 while gold prices are roughly flat near $1735.

The 10-year yield is a bit lower to 1.73% after a nice bounce higher yesterday.  And the VIX is also slightly lower to 15.68 still hovering below its 50-day overhead resistance.

Trading comment: The major indexes are holding up in new high territory.  The SPX is at new highs again, but the Nasdaq is a few points below its yearly highs.  More growth stocks continue to lead the market.  But with investor sentiment growing more bullish and this recent uptrend in the market getting long in the tooth, I would not be surprised to see some volatility and choppiness pick up in the near-future.  I feel like investors are getting lulled into a sense of complacency and Mr. Market usually doesn't like it when that happens.  But for now, let's see what the FOMC has to say about further QE now or in the near future.


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