This ECB Decision Could Stabilize Europe
The market lost ground again last week. Despite early optimism from Europe and a rise in bank stocks, the bulls could not muster any meaningful rally. And the bears quickly resumed the selling pressure, defended 1175 on SPX, and dragged the market back to within 3% of this year's low.
Volume was also high in the decline, which indicates that there still is a large base of investors who are more than willing to sell at lower prices.
And those sellers are wasting no time leaving the market. Indices in Asia collapsed overnight. The Chinese exchanges were hurt the most and were down 4% last night. Technically, Jakarta led the way lower with a 5.5% decline. Most of the other Asian exchanges were down 1.5%.
But the declines were not restricted to Asia. Most European indices trade with losses today. While the losses are not severe, continued worries over Greece and the European bank system have brought those indices down 2% this morning. For what it's worth, the credit rating of the U.K. was reaffirmed this morning at AAA.
It is a busy week in economic data, which will keep things interesting until earnings season begins later this month. Today's key economic data is U.S. ISM, which came out at 10:00 and was expected to show 50.3, a slight expansion; the actual result was 51.6.
On Tuesday, the Australian reserve bank will announce its rate decision. Australia was one of the first major countries to raise their benchmark interest rate, which now sits at 4.75%.
The rate is expected to remain the same, but the decrease in inflation expectations last night, and a slowing global economy, could mean they surprise us with a rate cut.
On Wednesday, the U.K. is set to announce GDP, which is expected to come in sluggish at 0.2%; European retail sales and U.S. ADP jobs come out too.
Thursday is a big day. On Thursday U.K. and the ECB will announce interest rates. The U.K. is likely to keep rates at 0.5%, but the ECB may decide to decrease rates from1.50%. A rate cut by the ECB would help stabilize the decline from the indices over the past two weeks.
Lastly, on Friday, both the U.S. and Canada will announce their official nonfarm payrolls and employment rates.
The bulls really need to regain 1175 soon, but I don't see it happening today. In fact, the bears have enough momentum to break 1131 support and take SPX to 1115. The bears have been unable to take out 1115 for the past two months, but with weak economic releases this week, the bears could take SPX to new lows.
After a break of 1100, the target is 1050, and I think that decline would happen very fast, but likely not last long. And a big scary selloff like that would pave the way for a sustainable recovery.
