The will they, won’t they, pump more money is over for now as all major central bankers have made it clear this week that they are not the answer to all our economic problems.
The inaction from the ECB, BOE or the Federal Reserve chairman Ben Bernanke has given markets a little time to pause for thought this morning.
Yesterday an early rally in the Dow Jones was undoubtedly driven by China’s interest rate cut, the latest one since 2008, as investors piled back into resource stocks in the hope that other central banks would follow suit. However, the optimism did not last long as conversely, investors remain nervous about the European outlook and how things will unfold in the near future. As Bernanke continued to speak risk appetite wore off causing the Dow to retreat from its highs, and that profit taking has fed through to the open of European trade this morning.
The FTSE is trading some 40 points lower at 5410 after failing around the 5480/5510 resistance mentioned in yesterday’s comment, so this level remains the near term test for the bulls. Clients have enjoyed the bounce in equities so far having been positioning themselves for such a move in the run up to the rally, going against the weakness of recent weeks, and those with more steely nerves have been rewarded.
Economic data is thin on the ground today with producer inflation numbers from the UK this morning. Along with the CPI, producers have finally been starting to see prices fall and hope to see further declines today with the month on month input number expected to come in at -1.3%, leaving the year on year at +1.3%. Later this afternoon from the US wholesale inventories are due to tick higher.
The surprise move by China, easing its monetary policy and cutting interest rates, triggered a rally in global markets benefiting the euro. Nonetheless, Ben Bernanke had a rather neutral stance in his speech yesterday, not really embracing QE3 yet. Or maybe he wanted to say ‘We have done it (QE), it’s your turn now WORLD’. Anyway investors seem slightly disappointed and pushed the euro 14 pips down against the greenback to 1.2562. This morning weakness from the latter part of yesterday’s session has followed through to today with EUR/USD heading back below the 1.2500 level trading at 1.2490 at the time of writing.
‘No rush for QE3’ was probably Bernanke’s message in yesterday’s speech and the pre-emptive gold rally seen last Friday was left exposed. As a result gold prices plunged below $1600.00 mark, ending $29.47 down at $1589.00. By the look of it, judging the overnight display it has further to retrace unless some bargain hunting will come back into the market.
The WTI crude prices joined the global rally when China announced its first interest rate cut since Dec 2008 as oil demand in the world’s second biggest consumer received a welcomed boost. However, the table turned quickly when the FED President Ben Bernanke did not seem too keen on another round of stimulus in the immediate future. Consequently, the WTI crude prices finished 68 cents in the red at $84.82.