Markets initially cheer rates cuts but it's a long road back
Two central banks the knights in shining armour for markets. Today, the first delivered as the PBOC cut rates in a surprise move.
This is half of what markets wanted and I expect that Dudley (Wed) or Fischer (Fri) will hint that no Fed hike is coming in September.
But at the moment, markets are dealing with the surprise of the PBOC move and so far the reaction is positive. S&P 500 futures are 62 points higher and the US dollar is up 1.5 cents against the euro and yen. The commodity currencies are topping markets on better hopes for global growth.
This is the critical moment
If there is a turning point, this is probably it. But nothing is certain yet. S&P 500 futures are already down 15 points from the euphoric highs and USD/JPY has scaled back 50 pips.
We saw alternating moments of fear and greed yesterday and it will have to be about buyers excited about prospects for stocks and the global economy that rescue sentiment.
Line in the sand
Today isn't over until it's over. Ideally, you'd like to see stocks close at the highs of the day. If that's the case, then I'm confident the coast is clear.
More likely is somewhere in between. If at any point, all the gains are wiped out, then it's time to get out of the way.
In FX, EUR/USD is probably the clearest signal at the moment, along with USD/JPY. Expect them to track (if not lead) sentiment. A selloff in Treasuries would also be a positive signal.
