Stock markets surged ever higher this past week in response to ECB words and no actions related to support of member sovereign bonds. Then that old “bad news is good” juice added a bit more fuel to the fire as negative employment data stoked speculation that the FOMC announcement this coming Thursday would contain a move to increase the Fed balance sheet.
I’m not buying it. As I said before, they’ll very likely extend guidance of exceptionally low interest rates into 2015, and that will be it. There will be no bond buying nor statement of intentions along those lines before Romney is elected (short of an emergency response to a financial panic). While U.S stocks gained about 2.5% for the week, the real action came in precious metals and miners which exploded about 9% higher for the week in reaction to this latest risk-on lunacy
Monday resumed the hopefest. With a Labor Day holiday in the U.S. and Bernanke’s personal legacy rescue speech behind us, attention shifted back to Europe with expectations that the ECB will do something—after all they said they would. Stocks in Asia closed positive but nearly flat while shares in Europe rose about 0.7% on hope.
Asian stocks Tuesday rolled over a bit, closing down about 0.4%. Stocks in Europe gave back Monday’s gain and more, closing down about 1.1%. U.S. stocks declined just slightly after a negative U.S. manufacturing data report. There’s little driving stocks other than the broken record of hope related to potential central bank action within in the next couple of weeks. Facebook shed nearly 2% for the day to close under $18 a share.
Wednesday, stocks in Asia moved sharply lower, down 1.4%, on fear. Stocks in Europe and the U.S. wavered around unchanged, closing mixed in anticipation of word from the ECB Thrusday. Facebook stock rose nearly 5% in reaction to Mark Zuckerberg’s pledge to refrain from further share sales for a year.
Thursday was the day markets anxiously awaited. The ECB said they would supply unlimited support to aid member bond programs. Asian markets closed up 0.5% in anticipation of the action. Stocks in Europe and the U.S. soared over 2% on the news on low volume. So how can Draghi top this one? Perhaps next he will say the ECB will supply unlimited, unlimited support. At some point, he will run out of credible things to say.
Spanish and Italian 10-year bond yields plummeted about 5%, the 10-year U.S. Treasury Bond yield blasted nearly 5% higher, while the VXO plunged over 14% to close under 15. Even Facebook and IBM joined the 2% crowd in this bogus buying spree. Finally, gold closed over $1700 per ounce to complete the no asset left unturned bubble mania. Now is time for a dose of reality.
Friday’s U.S. employment figures continued their dismal trend. This was bad news for both Obama. Of course, “bad news is good” for stocks, so they tacked on another 0.5% in the U.S. on low volume. VXO plummeted 9% to close the week at the euphoric 13.37 level.
The Italian 10-year government bond dropped 4% to reach nearly the 5% yield level while the Spanish bond yield collapsed another 6.6% to fall well below the 6% yield threshold. Earlier, Asian stocks jumped over 2% higher in reaction to the ECB statement Thursday but European stocks calmed to close just slightly higher.