Draghi Disappoints, Bernanke Sits It Out, What Next?

Draghi and Bernanke drop the ball and investors don’t like it

The U.S. and global stock markets suffered another down day, four in a row for the United States, as Mario Draghi and the European Central Bank followed Dr. Ben Bernanke and the Federal Reserve and did nothing.

Both central bankers passed on offering any further monetary easing which markets so desperately desire.

Tomorrow comes the widely watched Non Farm Payrolls and Unemployment reports which will offer further insight into the state of the U.S. economy.

Overseas the news was even worse as the European markets took sharp declines.

The Stoxx 50 declined 3% on the day, the FTSE 100 was off -0.88% and the Dax tumbled 2.20%.

European ETFs were also hard hit with the iShares Germany Index (NYSEARCA:EWG) falling 2.6%, iShares Spain Index (NYSEARCA:EWP) 5.6% and iShares MSCI Italy Index falling 4.4%.

Bond yields in Spain and Italy also spiked higher with Spanish 10 year bonds reaching 7.16% and Italy reaching 6.3%, both at or near the “unsustainable” 7% level.

The best Mr. Draghi could come up with is that the ECB and European governments would put their heads together to come up with a plan designed to buy bonds and so lower interest rates in the troubled countries in the region. The only flies in the ointment are that the German Bundesbank doesn’t like the idea and there is some question if it is even legal under the European Union treaty.

Today’s ECB announcement follows yesterday Federal Reserve meeting in which Dr. Bernanke and friends decided to do nothing and stand pat on their low interest rate position awaiting further developments.

So we again have the same situation we’ve seen so often in the past; promises leading to global rallies leading to disappointments and declining equity prices.

The Dow Jones Industrial Average (NYSEARCA:DIA) dropped 0.7%, the S&P 500 (NYSEARCA:SPY) fell 0.75%, the Nasdaq (NYSEARCA:QQQ) shed 0.4% and the Russell 2000 (NYSEARCA:IWM) slid 0.3% on the disappointment over Mr. Draghi’s failure to deliver.

Tomorrow’s unemployment report takes on added significance as markets grow more desperate for any news that might bring the Fed off the sidelines and move the European Central Bank to further stimulus.

Bottom line: Global markets have become addicted to central bank intervention to keep prices afloat. Market players have come to expect, if not demand, that the Federal Reserve and ECB keep the easy money spigot open. On days like today, they make their displeasure clear when central banks fail to do their bidding. Expect more such action ahead.

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