13 minutes ago | August 22nd, 2014 19:22:10 GMT

Why the closing level of the S&P 500 matters


The stock market has risen in 8 of the past 10 days and is battling for another day of gains. The index is at 1992 after falling as low as 1984.

A weekly close above the previous record high of 1991.39 would be a positive technical signal.

SP 500 daily

S&P 500 daily


30 minutes ago | August 22nd, 2014 19:05:13 GMT

Full text of Draghi’s speech


Speech by Mario Draghi, President of the ECB,  Annual central bank symposium in Jackson Hole, 22 August 2014

No one in society remains untouched by a situation of high unemployment. For the unemployed themselves, it is often a tragedy which has lasting effects on their lifetime income. For those in work, it raises job insecurity and undermines social cohesion. For governments, it weighs on public finances and harms election prospects. And unemployment is at the heart of the macro dynamics that shape short- and medium-term inflation, meaning it also affects central banks. Indeed, even when there are no risks to price stability, but unemployment is high and social cohesion at threat, pressure on the central bank to respond invariably increases.

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51 minutes ago | August 22nd, 2014 18:43:56 GMT

Draghi: “We stand ready to adjust our policy stance further”


The market was looking for him to open the door (a crack) to QE this year.

“Policy stance” sounds more like conventional measures but he also said the Governing Council would also use unconventional instruments to safeguard firm anchoring of inflation expectations. The euro rose 20 pips on the headline to 1.3260 from 1.3240 but the bounce sellers are already stepping in and it’s back down to 1.3250.

Other headlines:

  • Q2 GDP data confirms recovery remains “uniformly weak”
  • Preparations for ABS programme moving forward fast, should contribute to further credit easing
  • New long-term long programme has so far “garnered significant interest from banks”
  • Expected diverging policy paths in US and eurozone should sustain exchange rate trend

I don’t see why the euro should be bouncing on this speech. This is definitely a step toward QE, albeit a small one and there’s nothing here to reverse the trend in the euro.


1 hour ago | August 22nd, 2014 17:59:31 GMT

Fed’s Plosser urges rate rise “pretty soon”


  • Better to raise rates too early than too late
  • Policy statement has put Fed “in a box”
  • Fed doesn’t know whether it can actually improve margins of labor market
  • Fed ‘mired’ in debate on labor market

Plosser spoke with Reuters. There’s almost nothing Plosser could say that would move markets. He’s the biggest hawk at the FOMC, he’s already dissented and he’s essentially marginalized.


2 hours ago | August 22nd, 2014 17:30:15 GMT

Yellen doesn’t matter anymore


Yellen’s message to the forex market was “As you were”

Of course her speeches matter and there will eventually come a day when she says something that rattles the market but for right now she’s marginalized herself. Yellen is almost aiming to be the most boring central banker in history. There’s some nobility in that but it also means the market will look elsewhere for inspiration.

What’s inspiring the market at the moment?

Good US economic data. Yesterday there were 5 US economic indicators and each one of them beat expectations, the market didn’t move because it was scared of Yellen but it’s moving now.The Fed Chair can poke holes in the employment market but it’s inarguably improving.

Yellen was a speedbump in a burgeoning US dollar bull market. Sure, she didn’t give a greenlight to US dollar buying but the Fed is a slave to economic data and there’s a broad and very strong feeling that the US economy is getting stronger and will eventually for the Fed to hike. Whether Yellen is ready to admit it or not is immaterial.

Janet Yellen with the starting pistol

It doesn’t matter when Yellen fires the pistol, the race has already started


3 hours ago | August 22nd, 2014 16:16:00 GMT

Equity market overview: some thoughts for the year’s final third


Just last week the S&P had thoughts of breaking to the downside and dipping below 1900. Though it looks like Yellen’s careful words and geopolitical risks will prevent it, this week had, for a time, intentions of cresting 2000. Whether we like or not and whether we consider it as often as we should, the Forex market, commodities, debt, and equity markets are all cogs of the same machine and not different games in a casino for those simply with different tastes. So, currency traders should be cognizant of the current state of the equity market. Doing my best to avoid extracurricular commentary, here’s equities as I see them.

If you watch business television or read any popular business websites you’ve heard this more and more:

  • “The market is overvalued based on every fundamental measure of stocks therefore this bull market will end.”
  • “The market has gone up for too long and therefore must come down.”
  • “Irrational exuberance has returned and we are reliving the 1990′s.”

The problem is that valuation metrics are terrible at predicting stock market movements and just like investment managers reaching for yield, business journalists are reaching for a chart that drums up fear (and therefore click throughs). Recessions kill bull markets, they do not simply die old age.

Mean reversion is the trump card that everyone can play as an excuse to disregard the entire picture. “We are above historical indicator X, therefore we’re due to come back to the historical mean.” Those who play this card fail to give credit to the fact that something can stay above its mean for extended periods of time with no law-like pressure requiring it to descend. There are other ways in which the stock market can reach its long-term average without having to crash. For example, the stock market may deliver below-average yet positive returns for a prolonged period of time until the mean has been reached. No one wants a market to return 2% until data returns to its long-term averagee, but it can, more slowly, achieve that result sans a crash.

Aswath Damodaran made the point well when he said,

“If cash flows increase, growth rates surge, risk-free rates drop, or macroeconomic risk subsides, stocks should go up, and sometimes steeply, and there is no bubble. At the other end of the extreme, if stock prices go up as cash flows decrease, growth rates become more negative and risk-free rates and equity risk increase, you have a bubble.”

All I’ve accomplished so far is to point out that despite the news and certain indicators it is possible that we are not overvalued and due for a crash. That is not the same as arguing that we won’t crash. The takeaway is that averages are only marginally helpful and if you are trading and not in a long-term buy and hold strategy, they’re less than useless in the short term.

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3 hours ago | August 22nd, 2014 16:10:02 GMT

US unemployment doesn’t tell the whole story says Fed’s Lockhart


  • Is a little more cautious on growth than FOMC
  • Not so concerned we’re going to see a rapid gain in inflation
  • Wants to see a few more months of good data
  • Says if we see very strong data the first rate hike could move forward

The Fed mob are earning their corn today doing the new channel rounds as Dennis does CNBC

The market is all central banked out right now though and there’s no effect on the dollar. US 10 year yields have fallen further to 2.41% and although off the highs, the shorter end are holding up better.


3 hours ago | August 22nd, 2014 16:02:54 GMT

Fed’s Williams says unemployment is still too high


  • Doesn’t see risk of inflation overshoot
  • Says very accommodative policy is what’s needed
  • Says FOMC sees gradual rises in interest rates
  • Timing of rises depends on the data
  • Expects rise to occur near mid-2015

It had been so lovely and peaceful with all the jawboners on their jollies but they’ve all come back to work on the same day :-)

Speaking on BBG this time and was on Fox earlier

San Fran Fed’s John Williams is on the FOMC subs bench this term

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