Until today in 2012, markets had little in the way of catalysts and stocks have able to glide on Global CB accommodative policies and better economic growth. “Heading into the trading week, we have a few hours of window dressing left before the end of European LTRO#2, Bernanke semi -annual testimony (nothing new likely) and Global (gov’t )PMI’s. After a week or so of quietness as far as newsflow goes, the upcoming week may turn out to be the opposite as ‘Bears’ will likely try to stir things up” . Today, the Bears flew in on the wings of some “hawkish’ bits from CB’s and tried to stir the pot. In reality, nothing surprising occurred today from LTRO tender to Bernanke’s testimony. As far as LTRO coming to an end, it was something we’ve talked about for days as no longer durations were hinted by ECB due to their belief LTRO have done the trick and instilled confidence and calmness. (Market will wait on ECB meeting 03-08). The inline tender today wasn’t the problem, it was just right not to get the markets more riled up by either a much higher or lower number. As far as Bernanke, the odds of QE3 had already decreased to ~35-45% since FOMC minutes, ‘better than expected’ eco’ data has poured cold water on the idea. All Bernanke said differently today was inflation expectations may come in ahead of expectations due to crude prices. Most important to understand is Bernanke/ ECB take their policy cues from the markets and they couldn’t be any better lately, so the idea of more morphine besides ZIRP to ‘14 for U.S isn’t / wasn’t realistic in the next few months. (Globally, Japan became very accommodative just over a week ago and China is slowly adding ease.). Overall, accommodative policy is still very much in place.
” Eyes will turn to the 2/29 LTRO and what ECB says or does afterwards. If anything, a sell on the news will occur after this event to greet the new month.” Feb 21. Add the fact Bernanke didn’t open any more valves and Bears were able to stir things up in commodity land. (GOLD off $100, Silver hit hard as well.). But, how successful will they be with equities?. As said the other day, ” It (rally since Oct.) will probably end in a commodity linked led correction, but for now the market has shown resiliency day after day.”. This speculation relates to the end of LTRO/ Economic growth angle specifically U.S data covered here as a precursor to more’ hawkish’ rhetoric, which in turn may lead to risk assets selling off as is usually the case post-QE’s. A commodity led correction, but not necessarily one that will take equities down very much! Despite, equities finally succumbing to some losses late in the day after fighting back to par, the losses were marginal at best when put in context with the commodity hammering. Keep in mind, the VIX-VXX note earlier in the week vs. selling of single stocks. Single stocks held up quite well today showcasing this premise is still alive.
In all, the expectation was for limited upside >1370SP if reached and today is likely enough for a short term 'healthy' pullback. Let’s get it over with as the market has been fatigued, divergences playing a hand (yesterday’s lag note of RUT/transports included) and build back up to an NFP# on the 03/09 as noted…”……come March, markets will also want to position ahead of the next NFP#, which could be another robust one following last week’s claims (Thursday claims may fuel this idea further).”.Feb.22.
Global PMI's, US ISM on deck, last weeks 'flash' PMI's should be duplicated and come inline. No reason they shouldn't, US ISM should as well as regionals have been strong. Initial Claims may have more of an influence leading into NFP#.