Your MUST-READ Morning Stock Futures Cheat Sheet: Near an intermediate term resolution?
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The Precise Take – Near an intermediate term resolution?
Big Picture Analysis: There has been no shortage of analysis regarding yesterday’s unprecedented global central bank actions, and we feel compelled to to add to the fray, as months of headfakes may be culminating in near term decisive action. Some have asserted that yesterday’s coordinated moves were purely reactionary–a measure of desperation–by the CB’s, and presages more short to intermediate term downside risk, as a mere 50 bp reduction in US Dollar lending is unlikely to address liquidity shortfalls. Though it is possible the exact timing of the announcements could have been affected by an emergency, we believe this is merely the first of several planned easing steps to be played out over the coming weeks. We know that the vote, at least by the FOMC to undertake the measures, was conducted Monday. On that same date, high level EC officials, including Van Rompuy, Barroso and Ashton, were meeting with Geithner at the White House. Yesterday, ECB president Draghi said,
We might be asked whether a new fiscal compact would be enough to stabilise markets and how a credible longer-term vision can be helpful in the short-term. Our answer is that it is definitely the most important element to start restoring credibility. Other elements might follow, but the sequencing matters.
As our friend, Robert Wenzel, reasons:
Got that? “sequencing matters”.
The central bank swap announcement is the first step in a massive near-global money printing scheme. The next step will be the announcement on December 9 by European Union leaders meeting in Brussels that they have reached an agreement on a more centrally planned fiscal union of the eurozone. This will be followed by the European Central Bank hailing the fiscal union and implying or outright stating that the ECB will aggressively begin euro money printing.
Rather than being a non-event…, the swap announcement is a first step in major reversal of the ECB’s tight money policy. It is likely to bring huge price inflation to the eurozone.
Accordingly, while headline risk remains in both directions short term, we believe it is more likely to resolve to the upside over the coming weeks as a result of massive monetary stimulus. In the event such measures do not materialize, significant downside risk exists.
As to market technicals, in the volume profile chart below, we’ve extended the yellow line demarcating the high volume node for the ES from the prior consolidating wedge period, which is nearly precisely where traders rallied the ES to overnight at 1249. That the market is already accepting within the prior high volume area surrounding it is bullish, but we might still see a short term rejection today or tomorrow. If price can rally above and use it as support, we would expect a launch higher. ISM Manufacturing today at 10:00 am EST should be a market mover, after which focus will turn to tomorrow’s Employment Situation Report at 8:30 am.
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