In Europe, just as markets had hoped, the Bank of England approved more quantitative easing, adding $78 billion to its previous $298 billion program, and the European Central Bank cut its base interest rate by 0.25% to a record low 0.75%, and its deposit rate from 0.25% to zero.
But European markets that were up some, rolled over to the downside, and declined further after much better than expected economic reports were released in the U.S.
In the U.S., the ADP employment report was that 176,000 new jobs were created in June in the private sector, well above forecasts. And new weekly unemployment claims fell by 14,000 to 374,000 last week, much better than the consensus forecast of 386,000.
Adding to the positives, in a surprise announcement this morning China also cut its benchmark interest rate by 25 basis points.
Yet, pre-open indicators in the U.S. also rolled over to the downside, from previously indicating the Dow would be up 25 points at the open, to indicating it will be down 60 points in the early going.
Meanwhile gold reversed from being up $6 an ounce to plunging $20 an ounce, and crude oil, which was up fractionally, is now down $.48 a barrel.
It was quite a string of potential market-moving events, and they did create a rally even before the events took place, in anticipation of positives coming from them.
The events began three weeks ago with the hoped for bailout of Spain’s banks, then the election in Greece, the G-20 meeting, the U.S. Fed’s FOMC meeting, Spain’s request for rescue from its debt crisis, the EU summit meeting, and now the rate decisions by the Bank of England and European Central Bank. Still to come is the Labor Department’s employment report tomorrow morning, but this morning’s surprisingly positive ADP jobs report removes the fear of it being a disappointment.
Markets came out quite well on their hopes for the various events. Spain’s banks were granted their bailout loans. The election in Greece supported the euro and Greece wanting to remain in the euro-zone. The G-20 meeting disappointed by taking no action. The U.S. Fed disappointed by only extending ‘operation twist’ and not taking new action. But the EU summit came through with unexpected strong initiatives. Now the Bank of England has come through with the hoped-for additional quantitative easing. The European Central Bank has come through with the hoped for rate cuts. And the ADP jobs report raises the odds that the dreaded Labor Department employment report for June will also be a positive surprise.
So what’s not to like that turned previously positive stock markets, gold, and oil over to the negative side?
Is it just a temporary kneejerk reaction that will be reversed later?
Or is it that the unusual three weeks of potential market-moving events has drawn to a close, with markets not having much to look forward to now except a possible disappointing 2nd quarter earnings reporting season? Or that the better reports lower the hope for the Fed to step in to rescue the stumbling U.S. economic recovery?
Or perhaps it’s just technicians jumping in for a temporary downside trade due to the short-term overbought condition above short-term 21-day moving averages, and that the S&P 500 is up against potential short-term overhead resistance?
Subscribers to Street Smart Report: There is a hotline from last night, and an in-depth U.S. Market, Gold, and Bonds signals and recommendations update in the subscribers’ area of the Street Smart Report website from yesterday.
To read my weekend newspaper column ‘EU Rescues Markets Just in Time – Again!’ click here.