Short & Sweet again on the specific market comments in this post, because today’s TrendView Brief Update is a pointed discussion of the critical short-term macro-technical decision being S&P 500 future 1,375 area versus key 1,350-55 congestion; which was most interestingly held at the low of the break in the wake of the disappointment with the ECB yesterday. It is far more of an intermediate-term trend decision then many might’ve expected after that selloff from 1375. And as impressive as the sustained rally appears in the wake of the comments last week by ECB President Draghi, there are some questions after his failure to provide direct bond market support.

Quite a few of those questions will be answered by…

…what the market tells us it thinks of all these complex cross currents. And the macro-technical decision can be boiled down to whether the September S&P 500 future posts a weekly Close above that 1,375 level or sinks back below 1,355-50 first. Sometimes folks make the markets more complex than necessary. The same psychology that was important on the relatively quiet ranging up to a new rally high last week spills over into today’s US employment report response; that’s all there is!!

Thanks for your interest.

Bernanke busts politicians with QE ‘pass’.  After so many folks insisted that the FOMC ‘must’ provide further quantitative easing in yesterday’s announcement, it was a bit of a bust for there to be no indication of immediate action. So why was it that the equities held up so well in spite of the lack of this allegedly essential move by the Fed? The September S&P 500 future managed to hold no worse than the 1,370 Tolerance of the recent 1,375 short-term Double Top.

The first answer might be within the FOMC statement. While there was no explicit immediate QE action, it did allude to the fact that “…economic activity decelerated somewhat over the first half of this year.” Another subtle yet meaningful change later on in the statement was the inclusion of the term “will” regarding the additional accommodation that will be provided if economic and financial developments continue to weaken.

Yet, on balance, the real support for the equities likely came from another source: and ECB press conference where President Draghi is supposed to be backing up the commitment from late last week on defending the euro currency project at all costs. That will undoubtedly be a very interesting affair.

However, even if he does commit some sort of extended support over the current protestations of the Bundesbank, we still have our basic question about all of this liquidity provision. Does crisis mitigation actually amount to any meaningful growth restoration?

The fact is that the current economic weakness is not due to monetary tightness of any sort. It is more so a creature of political and regulatory dysfunction. And those hard decisions to address the issues do not appear to be any closer in either Europe or the US.

And while we will have much more to say about the global context, there was an excellent Short View column by James Mackintosh on three key dangers that the equities are ignoring at present… much like they ignored the US debt ceiling debate last year until it was too late. Those are the imminent bankruptcy of Greece, US fiscal cliff, and the extent of the Chinese slowdown. The online version of that column at ft.com also contains a video that includes graphs and additional discussion beyond the short analysis in the column.

The bottom line is that all the QE in the world does not necessarily amount to much that will cure what ails the real economy without significant fixes for the problems that amount to a breakdown of the “monetary policy transmission mechanism.” We alluded previous to the high performance engine revved up yet going nowhere, because the ‘transmission’ was broken. At least in Europe Signore Draghi is combatting outside sentiment that is skeptical of weak sister Euro-zone sovereign bonds. The lack of action in the US is much more a self-inflicted wound.

However, that does not make the problem any less of a risk for the global economy.Recent economic data suggests the negative psychology from Washington DC is affecting consumer confidence as well as business ‘animal spirits.’ Unless something changes soon, it will be a self-fulfilling bout of further weakness. So even if Mario Draghi continues supportive actions, there is a real question over whether that changes anything in weak global economies unless the political class gets its act together.  

Thanks for your interest.

The Technical Projections and Select Comments are now available through the link in the right hand column. That is along with this week’s previously provided Weekly Report and Event Calendar and Summary Perspective on Key Influences, also all available through the link in the right hand column.Even as demure as we try to be at most times, due to the pressure on central banks to “do something”, we could not help but note that this is going to ultimately be a proverbial MONSTER WEEK.

And it is no secret that even with the imminent FOMC announcement, the real crux of the matter is whatever transpires at the ECB post-rate decision press conference Thursdaymorning (US time.) After President Draghi’s bold pronouncement on doing ‘whatever is necessary’ to save the euro currency project, there will be a major focus on the specifics at that press conference. And even beyond that, there are surrounding factors which are so highly critical…

…such as just how much of any expanded ECB liquidity or bond buying program will be supported by the northern European powers-that-be, especially Germany. After last week’s intergovernmental Merkel-Hollande-Monti Love Fest, we now hear that the government and the entire German cabinet are in fact very much against providing the soon to be initiated European Stability Mechanism (ESM) a banking license. For anyone out there who is not already aware, that specifically limits its ability to leverage its funding by essentially purchasing European government bonds on margin.

And yet, that has the ECB cart a bit out in front of today’s FOMC horse. Our guess is thatUS economic data is not yet sufficiently weak (even in light of the weakness of the global economy) to provide the FOMC the incentive to engage in further quantitative  easing (QE) right now. More likely the statement language slants heavily toward employing it timely if there is no improvement within a reasonable length of time. We shall see.

General Market Observations
Obviously much for all asset classes still rests with the overall decision this week on whether September S&P 500 future manages to maintain a weekly Close above previous near-term 1,375 Double Top prior to falling back below more prominent 1,350-55 historic congestion. This will obviously have much to do with the inferences drawn from the FOMC statement this afternoon, and more important ECB post-rate decision press conference tomorrow.

And it will undoubtedly be no small influence on the other asset classes as well, especially the primary government bond markets. Of course, the one that has the most direct stake in the extent and nature of any ECB government bond market support or quantitative easing is the now highly volatile September German Bund future. The key area to watch there not just on any near-term swing but for the weekly Close is 143.75-.50.

Short & Sweet again on the specific market comments in this post, because today’s TrendView Brief Update is a pointed discussion of the most critical short-term technical area being the 1,375 area. In other words, the ultimate near term Tolerance of whether the September S&P 500 future maintain it escape above the key 1,350-55 resistance; which is the far more major trend decision area.And as impressive as the sustained rally appearsin the wake of the Chairman’s testimony Tuesday and Wednesday, there are some questions.

Do the earnings announcements outperforming such heavily downgraded guidance really amount to any improvement? It is of note how much of the earnings ‘success’ has been engineered by lowering costs rather than top line growth. And is the bulls’ inference that the Fed will move in to prevent economic weakness correct? Or will the only move to buffer it after it occurs.

Quite a few of those questions will be answered by…

…what the market tells us it thinks of all these complex cross currents. And the macro-technical decision can be boiled down to whether the September S&P 500 future posts a weekly Close above that 1,375 level or sinks back below 1,355-50 first. Sometimes folks make the markets more complex than necessary. The same psychology that was important on the relatively quiet ranging up to a new rally high on Thursday spills over into Friday; and in this instance (including the general economic psychology influence on other asset classes), that’s all there is!!

Thanks for your interest.

In all humility, our assessment of why the equities would strengthen and other asset classes would behave as they have into the Bernanke testimony today has turned out pretty much as expected… At least so far. The Weekly Report & Event Calendar is still available through the link in the right hand column. The focused comments below it are now also available as well in the calendar section as the Summary Perspective on Key Influences. We hope you find that useful as well.

It contains an opening discussion of why Mr. Bernanke’s little chat at the Senate today is a pivotal influence for the first part of the week. Of course, that includes the degree to which anticipation of some sort of additional quantitative easing (or liquidity expansion by any other name) is an issue the Democratic members are going to push into this political season. And yet, there are quite a few good reasons why the Fed Chairman will more likely demure.

Which is more critical than usual for the first part of this week because…

 …he is unlikely to change his tune between his Senate testimony today and what he tells the House on Wednesday. It will all also be a preview of what to look for in Wednesday afternoon’s Beige Book release. And the bulls need the Chairman to be forthcoming on that liquidity expansion because the global economic data (now joined by that of the US as well)is indeed weakening. The bottom line (with apologies to Marx) is that the Fed is the opiate of the perma-bulls… and they realize they need another fix right now to avoid the shakes and potential broader global economic weakness ‘withdrawal’.

However, there are various good reasons why the Fed Chairman is more likely to demure, and toss the lack of economic growth problem back where it rightfully belongs: in the laps of the politicians who will be grilling him today. We shall see.

All the rest is the same as analyzed and reported previous, with the major consideration for most other asset classes being whether September S&P 500 future can indeed Close above the 1,350-55 on a sustained basis prior to failing its 1,338-35 area Tolerance.Whatever transpires there is likely a key to all of the other asset classes trend decision as well. Note the limited primary government bond market pullback in spite of equities strength, and the firmness of US Dollar Index. That speaks of the degree to which equities might be questionable.

Of course, the balance of the General Market Observations and EXTENDED TREND IMPLICATIONS last are included in the Concise Market View section of the Summary Perspective.

Thanks for your interest.