© 2012 ROHR International, Inc. All International rights reserved.

It seems the fundamental drivers for the markets are possibly headed for another significant disconnect. Yet the markets are ignoring it for now. Possibly that is because whether there is a dislocation in Europe will not be completely clear until after Sunday's French Presidential election and Greek Parliamentary elections. However, that does not lessen the degree to which the mindset of the European people (and some European governments), the economic data, and the current stance of the European Central Bank might be at odds.

This has become more apparent through the French Presidential debate allowing Monsieur Hollande to maintain his lead over President Sarkozy. It is of course still possible that the current French head of state will attract enough votes from the Far Right to defeat the challenger in Sunday's poll. Yet, we must admit that the prospect of the Socialist victory in the presidential election is creating far less concern in the markets than we might've suspected from yesterday's Showdown at French Election Corral.  

The consistent weakness of the international economic data (now including US ISM Non-Manufacturing Index) is making Tuesday's strong US ISM Manufacturing Index ever more the outlier in a weakening global economy (as we had already noted yesterday.) While there might be a surprise in tomorrow morning’s (holiday delayed) European Services Purchasing Managers’ Indices, any further confirmation of weakness there will set a very negative tone into the important US Employment report.

That is already somewhat suspect due to the weakness of yesterday's ADP private employment figure and this morning's Challenger Job Cuts pushing up once again. Whatever else we may see, the prospect of further weakness in economic data would seem to justify the "growth” versus austerity agenda of those on the Left. And yet, at today's post-rate decision press conference ECB President Draghi seemed far more focused on reform rather than any further stimulus. And that is just the sort of thing that might leave the central bank on the opposite side of popular rejection of austerity…

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© 2012 ROHR International, Inc. All International rights reserved.

Our Weekly Report & Event Calendar and focused comments in the Weekly Report & Event Summary Perspective on key influences anticipated all this from the top of the week. Hope you found that useful, as the fun has just begun.

Whatever has transpired so far is just like a good symphony: it is just the overture for what is coming next. And for any of you who might have failed to read that assessment of the key event horizons for the week…

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© 2012 ROHR International, Inc. All International rights reserved.

The Weekly Report & Event Calendar is now available through the link in the right hand column. The focused comments below it are already available as well in the calendar section as the regular weekly Summary Perspective on key influences. We hope you find that useful as well.

For those of you who have not already seen it, there is a lot of emphasis on Thursday and Friday this week. However, as opposed to last week’s economic data and important event saturation bombing each day, the dislocation of European events due to the May Day (or Labour Day) holiday Tuesday is an important theme. In spite of some other influential market impacts, the European holiday intensifies the focus on the Thursday-Friday event horizon.

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© 2012 ROHR International, Inc. All International rights reserved.

In its way, it's nothing less than breathtaking. The tremendous resilience of the govvies (at least the primary markets) in the face of the equities seeming to get back on track yesterday is impressive. Let’s allow that each of these asset classes is on a bit of a correction from recent highs. Even so, the degree to which govvies have maintained their overall bid while equities have rallied so strongly since the first of the year is quite a phenomenon.  Maybe it is all just a reflection of the massive global central bank liquidity infusions and low interest rates; and that is causing investors to chase yield wherever they can find it.

However, there is very possibly another macro-technical factor at work: a classical corporate earnings announcement season split influence. That is to say positive earnings driving equities buying. At the same time troubling real world economic and political news causes other funds to seek the safety of the primary government bond markets. And that is more so typical of the short term cycle. As such, it is less surprising than might otherwise be the case. We have seen it before, and the operative question is, "What happens next?"

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© 2012 ROHR International, Inc. All International rights reserved.

The FOMC rate decision and statement, Fed staff and member forecast revisions, and Chairman Bernanke’s press conference are alleged to be a major driver for the markets later today. Forget about it. It’s going to be more of the same, even if it is a supportive factor. It will be no surprise of the net focus will be continued improvement in US growth, even if at a slower pace than the Fed would like. More blame and derision will likely be (rightfully) heaped on the ineffective US administration and Congressional response to the problems in employment and housing. That is ultimately linked to the uncertain business environment regarding taxes, regulation and a bit of protectionism: Taxulationism still rules. Yet, after all that only one thing matters…

There is still a ‘Bernanke Put’ ready to be implemented if necessary. There will almost certainly be a lack of any overt commitment to further immediate QE (quantitative easing.) That will be a disappointment to the aggressive bulls who would like to see the Fed continue to juice the economy and equities market (along with other risk assets.) However, that famous a cappella group Benny and the Doves are still singing the same tune: the Fed is prepared to step in if conditions should deteriorate. Voilà… the ‘Bernanke Put.’

And in spite of those two highlights, further central bank support may indeed be necessary at some point. It was most interesting that the equities Closed lower last Thursday in spite of 18 out of 18 corporate earnings announcements beating estimates. That was due to the increasing headwinds that are appearing from many macroeconomic quarters…

(1) Taxulationism © 2010 Alan Rohrbach & Jack Bouroudjian. All international rights reserved unless explicitly waived

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