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2012/09/07: Draghi + data = equities ecstasy, until US Employment

September 7, 2012 Leave a comment

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Does the Draghi-data confluence create the next extension of the equities beyond critical resistances like 1,440-45 in the lead contract S&P future? Or could this be the next exhaustion in the equities now up against bigger resistances? And the next major primary government bond market rally opportunity as we head through the quarterly futures expiration cycle? More on that below. But first…

The ECB producing a more extensive (both in scope and duration) plan to stabilize the yields of distressed Euro-zone sovereign debtors was indeed a positive step. Even though “the devil is in the details”, the European bond markets have taken it very well. That diminished ‘tail risk’ (of an overt government bond market and ensuing banking failure) has allowed the equities to push-up markedly.

And that is in spite of the fact that there is not yet any sign Spain or Italy will opt in to the new bond support program. There are also other less than impressive aspects of the evolved ECB program for Europe that we revisit below. However, almost needless to say, yesterday’s better-than-expected economic data in the US assisted equities in pushing through recent resistance, aided further by somewhat less-depressed-than-expected economic figures from Europe this morning.

That is up until this morning’s somewhat disappointing US Employment report. It is very clear that anything which brings into question the viability and potential for increased momentum in the US economic recovery is not good; especially in the context of so much general global economic weakness. And in spite of the impressive upsurge in the equities yesterday, they are only headed for the much bigger technical trend thresholds that will decide whether this rally is just getting started, or reaching another near-term exhaustion.

While we will have more to say on that below, for now it is important to note some key limitations that were necessary inclusions in the ECB plan for Europe…

 

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