The collision of global markets and social mood

Thursday, July 3, 2014

The Latest Fast 'N' Furious Rate Cut As The Markets Head Higher

Trying to avoid the news is getting increasingly difficult. It's coming fast 'n' furious.

Sweden. First this morning there was their weaker than expected PMI to go with the weak PMIs coming out of Asia, Australia, and Europe.

Then the Riksbank, Sweden's central bank, cut rates by 50bps to 0.25%. According to Erica Blomgren, Fixed Income Strategist at SEB, this very dovish move was not expected.

USDSEK is ripping nearly 2%. USDNOK is rallying in sympathy.

A quote from the Riksbank via Blomgren: "inflation is lower than expected and underlying inflationary pressures are clearly lower than assessed in April."

This is yet more deflationary pressure spreading.

Blomgren also notes the Riksbank introduced a 0.5% negative deposit rate as well.

It's not just the Fed or the ECB or the BOJ: central banking is a mess everywhere. At some point the laws of gravity will reassert themselves and things will get even messier.

Until then there are tight stops and the ability for the market to march higher. 1964.24 remains the cleanest stop. The S&P bounced off the upper trend line from April (less than 1 point from the 1979.55 Fib target) and looks like it may want to retest it. This could target the 1982.74 Fib extension.

Intraday A/Ds are fading relative to their June 5th peaks, and ticks are in a steady downtrend since April. The TRIN closed in the sell zone. The percentage of the S&P above the 50dma is fading against the rally since the beginning of June. This is not an encouraging backdrop even with stops.

Still, the top scenario remains 82.74 before 64.24. Calls are cheap. You can only lose what you pay for them.

Yesterday a CNBC reporter repeated the narrative that the "consumer is starting to borrow again." Actually, the consumer is using the credit card again -- to maintain a carefree lifestyle.

But as ever, the real data shows the same old picture, and it's the same reason why the Riksbank cut rates. Money velocity, the lifeblood of central banking, is deflating as asset prices rise.

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