Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
U.S. investors come back from their holiday to see futures screaming up? Why? Jawboning from Europe. In what might be a parallel to what we saw almost exactly a year ago when Mario Draghi famously said he’d do “whatever it takes” to keep the Euro region together, the ECB has given “forward guidance” for the first time. Breathless analysts are calling this a “game changer” and “unprecedented”. In reality all it is, is saying low interest rates will be around for a long time. It just hasn’t been said out loud in Europe – apparently this is worth +2-3% in almost all major European markets. So is “our exit is distant” the new “whatever it takes”?
- President Mario Draghi said the European Central Bank expects to keep interest rates low for an “extended period” as he tries to restrain market borrowing costs, in a new departure for an institution averse to setting policy in advance. “The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time,” Draghi said at a press conference in Frankfurt. “What the Governing Council did today was to inject a downward bias in interest rates for the foreseeable future. Our exit is very distant.”
- The ECB chose words over deeds after an “extensive discussion” about cutting interest rates, and the support for the new language was unanimous, according to Draghi. He said the bank kept an open mind on whether to cut the deposit rate below zero.
- Historically, Draghi and predecessorJean-Claude Trichet have said that the ECB “never precommits” to any future monetary policy.
Again, the entire world market has just become a parlor game to guess central bankers words or actions. Today’s employment report has now taken a back seat as futures surge. In fact this entire rally from the late June bottom has now been in premarket, remarkable really.
The S&P 500 has had a lot of trouble with the 50 day moving average, having been rejected multiple times the past week. As we have seen over and over since 2009 whenever a key moving average cannot be bested in the normal hours, you go to premarket to get it done since liquidity is thin. So today might be yet another example. 1640ish is probably the more important level but a hold of this gap and continuation early next week and it seems the bears lost their chance yet again. There is a gap to note at 1629ish from two weeks ago Thursday as well. Also note the MACD should cross bullish with today’s gap up.
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