Markets Move On Expected Eurobond, QE3 – “Sell In May And Go Away” Didn’t Work This Year:
The Dow had its best June since 1999 and the NASDAQ had its best June since 2000 as world markets moved higher today. Global equities rose as investors anticipated a higher likelihood the EU will begin issuing bonds (see our eurobond prediction on June 10). German Chancellor Angela Merkel stated earlier in the week that no eurobond would occur in her lifetime, but news broke today that the EU Summit June 2012 talks on the issue were more positive than pronouncements earlier in the week. Spain and Italy are the main drivers behind the new negotiations for a possible eurobond and stocks rose sharply ahead of trading today based on the EU Summit headlines.
QE3 May Be On The Way After June 2012 Unemployment Numbers Are Released
Continued weak employment numbers this week increased the likelihood that the Fed Reserve Bank would implement another round of easing. Initial jobless claims were dismal although some positive news from the housing market helped lift U.S. equities higher. We predicted earlier this year that the old adage “sell in May and go away” wouldn’t work although economic data became more mixed because commodities prices, namely gold – dropped. Continued economic data weakness caused the Fed to step in early before the economic recovery faltered. Inflation hawks have been wrong and those who suggested QE would make commodities prices rise have seen the exact opposite occur. Deflation is a bigger risk than inflation right now which gives the Fed more room to ease further.
We will be watching the euro versus the dollar to see if the news from the EU will present follow through opportunities and buying on dips which we suggested all last week worked well.