No QE3 in the pipeline
In the aftermath of the disappointing data from the US economy we suggested that the chance the Fed was going to once again stimulate the economy was remote. Indeed, this option was rejected by Fisher and Plosser on Monday and not even mentioned by Bernanke yesterday. In a key speech delivered yesterday, Bernanke:
- Argued that the Fed’s policy is indifferent for commodity prices (we do not fully agree but it’s not the key point atm.)
- Underlined weak labor market but only mentioning that it would take a solid job creation for the Fed to begin tightening (no mention of QE3 to stimulate the process, even between the lines)
- Highlighted commitment to low inflation in the final paragraph of his speech.
So rather than opening the door for QE3 speculation Bernanke defended Fed’s deeds, suggesting that all that can be done is staying put (instead of tightening). That was short of what was expected so the message is: negative for equities, negative for commodities and slightly positive for the dollar.
S&P500 – still moving down
With no help from Bernanke, S&P500 futures failed to bounce back from the support line and a near-term march towards 1272 pts. (the first target for wave C) is a base scenario. One needs to notice that we’re still talking about a final corrective wave here, so the long-term uptrend remains in place. However, this correction might be either a running one (ending at 1272) or an irregular one (ending even at 1213 pts.) so for now bulls are still facing headwinds.
OIL – OPEC to increase output
OPEC is about to announce an increase in output limits today (10.00 ET, 16.00 CET) but for the market the key question is when oil prices will react to the deteriorating economy. And to be precise – when (and how quickly) speculators will unwind their massive net-longs, potentially leading to a decline on other commodities, equities and appreciation of the dollar.
Technically, levels of 119,50 and 107 are most important. Moving above the first one would confirm an upward trend (along the wave 5th) and a decline below 107 USD could trigger a H&S formation. Fundamentally, this latter scenario seems more plausible.
Events to watch – Beige Book, fuel inventories and German output
After a message from Bernanke, Beige Book (2.00 PM ET, 20.00 CET) will offer a judgment on the economy from regional Fed districts. In Europe the data on EZ GDP (preliminary; 5.00 ET, 11.00 CET, consensus +0,8% q/q) and German output (6.00 ET, 12.00 CET, consensus 0% m/m) will be released and in the US the data on fuel inventories will be available at 10.30 ET (16.30 CET).
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Przemysław Kwiecień PhD, Chief Economist |
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Disclaimer, investment risk warning
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