Wednesday, November 13, 2013

Will ECB Be Next Cental Bank To Enact Quantitative Easing?

Markets are trading in lackluster action again in early trading, but once again any pullback has been mild and contained.  Certainly not the vicious pullback the bears were looking for.  I also feel that the longer we move sideways the closer the market is to another upside breakout.

There were no big economic reports to speak of.  Bond yields are creeping lower as the 10-year fades back to 2.73%.  The Treasury will auction off $24 billion in 10-year Notes today.  And tomorrow will be Janet Yellen's confirmation hearings in Washington.  So we should hear a lot about QE, tapering, inflation expectations, etc.

Speaking of QE, the chief economics at the ECB said that the central bank could deploy and asset purchase program (QE) in order to meet its inflation target of 2.0%.  They are probably looking at the success of the Bank of England's program, as the BoE today released an upbeat report saying their recovery has finally taken hold.  The Bank of Japan also recently said it expects its asset purchase program to help meet it's inflation target.

The ECB would be the 4th central bank to engage in quantitative easing to help avoid further deflation.  That seems to be the worry of the day for central banks.  They are less worried about inflation, as they feel that have the tools necessary to combat that evil.  But you have to wonder how long it will be before we could be talking about too high inflation and people pointing the finger at these QE policies. 

Considering all the QE going on and talk about reflating economies and assets, you sure don't get that sense from looking at the chart of copper.  Take a look at the copper ETF (JJC) and you'll see an economically sensitive metal that is breaking down again and mired in a bear market.  Odd.

The VIX is 2.5% higher to 13.15, but overall complacency reigns in most of the sentiment indicators that we follow.

Trading comment: Sticking to the playbook and looking for spots to add to stocks that have consolidate and pulled back from recent highs.  We trimmed some of our 3D printing names as they have gone straight up - not a bad problem to have.  While we were hoping for more of a pullback, we don't want to be left holding too much cash if and when the markets break out again.  Year-end performance pressures are likely beginning to surface and fund managers will be adding to their winners into year-end in window-dressing fashion.


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