For those that were cheering for central bank intervention as a way to buoy global equity prices, the last few days have rewarded them. On Wednesday of last week, the major central banks made a joint announcement that they had agreed to lower interest rates on dollar swaps. Since Wednesday, the SP500 is up +4.7%.
With the announcement of intervention behind us, the key focus will be the pin action in Europe this week and there are a number of key calenedar events to keep front and center:
1. Geithner arrives in Frankfurt tomorrow
2. ECB interest rate announcement on Thursday
3. EU meeting on Friday
Both equity markets and even bond markets in Europe are presupposing a solution to come in the next couple of days. Rumors are rampant as to the size ($1 trillion? $2 trillion?) and nature (ECB backed? IMF backed?), but one thing is for sure, if clarity doesn't come this week, then it is unlikely that equity rally will be sustained through year-end.
The SP500 remains below both our TRADE and TAIL lines of resistance at 1,259 and 1,270, respectively.
Daryl G. Jones
Director of Research