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So Markets Still Believe Central Bank Promises?!

  • Written by Syndicated Publisher No Comments Comments
    July 26, 2012

    As the signs return of the euro-zone crisis worsening dramatically, European Central Bank President Draghi came out with a statement a couple of hours ago saying, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me it will be enough.”

    That’s all it took. European markets, which were down again, reversed to a sharp spike-up well into positive territory. In the U.S., Dow futures that were pointing to the U.S. market opening to the downside, also reversed sharply to the upside, with Dow futures suddenly spiked up more than 150 points. And the yield on Spain’s bonds dropped from 7.32% to 7.04%.

    Wow! The power of a few words – which don’t really say anything much different than previous promises from euro-zone officials over the last two years.

    The words came just as European stocks were trading lower earlier on an additional worry, a string of downbeat earnings from a wide range of sectors and blue-chip names across Europe.

    The ECB’s success in rallying market confidence might be good news for the U.S. Fed.

    Maybe it can come to the rescue of the U.S. economy at its FOMC meeting next week by just stepping up the rhetoric about how the Fed stands ready to come to the rescue.

    The Fed is under pressure to come to the rescue, but seems reluctant to do so, perhaps not having confidence that anything it tries next will work.

    But instead of taking action, or continuing to just say that the Fed is monitoring the situation and “will take action if needed”, maybe they could get the same result as the ECB by just changing their words to something like, “The Fed is ready to do whatever it takes to preserve the economic recovery and it will surely be more than enough when the action is taken.”

    It sure worked for the ECB, even better than when it actually took action a couple of weeks ago by cutting interest rates and raising the amount of money available to European banks.

    Now the question becomes what actions will be forthcoming from the ECB and when.

    Tomorrow’s important release of 2nd quarter GDP will be much more than that.

    Tomorrow morning’s 2nd quarter GDP report will be the most important report of the week, if not the month. As we all know, the economy (GDP) slowed from 3.0% growth in the 4th quarter to just 1.9% in the 1st quarter, which was a shock to the forecasts. And individual economic reports since indicate further slowing in the 2nd quarter.

    But as important as that second quarter information will be, there is potentially more important information scheduled to be released at the same time.

    Every year or so, after additional data, like corporate income tax returns, has become available, the GDP growth reports for the last several years are revised. And those revisions are also due tomorrow.

    They have sometimes been quite significant. For instance, in 2010 and 2011, large revisions were made that revealed that the 2008-2009 recession was much worse than previously thought. Those revisions are thought to have played a large part in the Fed’s decision to provide QE2 in 2010 and ‘operation twist’ last year.

    Tomorrow’s revisions will cover the period from the first quarter of 2009 through the first quarter of this year.

    There is no way to tell in advance which direction the revisions will take. As noted, the last such revisions showed the recession to have been much more negative than previously reported. Tomorrow’s revisions will show whether the recovery has been weaker or stronger than previously thought.

    Seasonality’s effect on global markets!

    We’ve provided a ton of information over the years on the effect of seasonality on the U.S. market, from our own research, from a number of independent academic studies, and from the performance in real-time of our Seasonal Timing Strategy over the last 12 years since I introduced it in 1999. But very little on seasonality in countries outside of the U.S.

    On Tuesday we remedied that in a substantial way, with an in-depth ‘Global Markets’ update in the subscriber’s area of the Street Smart Report website, that included not just the usual charts and signals on individual markets, but also detailed information on seasonality in global markets,including a table of its effect on the performance in each of 37 individual countries from 1970 to 2012.

    I strongly suggest that subscribers print the tables out and keep them for years to come, for use when considering which global markets to invest in in the future.

    To read my weekend newspaper column’ click here: A Mid-Year Update on the Market’s Seasonality. July 20, 2012

    Subscribers to Street Smart Report: There is an in-depth U.S. market charts and signals update in the subscribers’ area of the Street Smart Report website. from yesterday, and an in-depth report on global markets from Tuesday.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!