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Thursday Failure – BOJ, ECB Go On Hold, Disappointing Bulls

No more easing?

The BOJ's Koroda said this morning that there is "no need and no possibility for helicopter money."   That's a pretty firm line in the sand and, as you can see on the Nikkei chart, it led to a very quick 425-point sell-off (2.5%) which is in the process of failing the strong bounce of 170 points from 15,575 to 16,745 and failing the weak bounce again at 16,660 will be a bad sign for the /NKD Futures according to our fabulous 5% Rule™.

We're wathing the Nikkei but we already shorted the Dow and the US indexes in our Live Member Chat Room this morning, when I said to ur Members:

18,500 is lined up with 2,165 on /ES, 4,650 on /NQ and 1,205 on /TF, we want to see them all below to play a short.  

I have been saying for some time that the Central Banks have reached the end of the line on QE but clearly the bulls in the market did not believe me and our recent attempts to short the Dow have not ended well but now the ECB has also put rates on hold this morning and that paves the way for the Fed to RAISE rates at their next meeting (next Wednesday, 27th).

We'll see how the markets actually react to the end of the Free Money era.  It certainly needed to happen as we've been on a path to insanity and it's a lot better to begin a controlled deceleration of QE than to keep priming the pump until the bubble explodes in our faces.  How the markets will react to a mature decision remains to be seen.

Draghi, of course, is still talking a big game, saying the ECB stands ready to do something while, as usual, doing nothing.  Those who thought Brexit would lead to more QE will be bitterly disappointed but perhaps their too-early buying frenzy in aniticipation of ECB action was itself a factor in deterring the ECB from acting?

The IMF has issued an urgent call for the G20 to "adopt policies to boost growth and avert a global slowdown" saying Governments should be prepared to provide fiscal stimulus while the CBs pull out all the stops to raise inflation – includiing negative interest rates.  The inaction of the ECB and BOJ today is a firm rebuke to the IMF.

"This month is all about central banks sitting on their hands and the ECB is no exception, " says Luke Hickmore, fixed income senior investment manager at Aberdeen Asset Management.

"They are waiting for some hard economic data to indicate what harm the U.K.’s referendum might have on eurozone growth. The trouble is that there’s not much more that they can do and it wouldn’t make a huge amount of difference if they did it."

We've been sitting on our hands, waiting for these rate indecisions and also waiting to see how the early earnings reports shape up and, so far, they've been a bit better than we thought as our first 20% of the S&P 500 companies give their reports. 

Next week, we pop over the 50% mark on reporting comanies and then the fun will begin as we have enough information to place bets on the rest and also enough information to pick up some of the companies that have gone on sale after disappointing earnings reports – as well as disappointments regarding monetary policy.

Aside from Euro Stoxx at the 3,000 line (failing so far), we'll be watching the DAX very closely to see if they can hold the 10,000 line as that's more than 10% off Germany's highs while the S&P is making all-time highs (and Japan and China are 40% off their highs).  Someone is being unrealistic – the question for the summer is who?


Provided courtesy of Phil's Stock World.

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