Draghi Disappoints At August 2012 ECB Meeting But Market Takes It In Stride:
Did Draghi do damage?
Mario Draghi talked-the-talk but apparently wasn’t able to walk-the-walk. But on second thought, perhaps he actually accomplished his goal? Monetary policy works best by inference and signaling. The ability for Mario Draghi to make the statement that he and the ECB would do “whatever it takes”, did have a positive impact on trading sentiment and helped the euro rise. A similar statement about this time last year from Draghi would have done little to move markets when the U.S. was on the verge of its first downgrade by Standard and Poor’s.
U.S. equities fell in sympathy with stocks abroad and dropped in the early session before 9:30 EST. Later in the trading day, market participants digested the news and stocks fell further after rising significantly last week. Traders are now looking forward to the July 2012 unemployment data tomorrow and there is some evidence that even a minimal change in jobs growth could change the nominal rate lower based on labor participation rate declines.
Jobless Claims Rise
Jobless claims for the week ended July 28, 2012 increased by 8,000 to 365,000 the Labor Department said today. This has caused us to maintain our forecast that jobs growth will stay around the average of 75,000 for the last few months +- 25,000. This gives the Fed more room to move inter-meeting since expectations are now extremely low based on the ECB, Bank of England (which also made no interest rate change today). The trend in weak economic data will be more conclusive if employment doesn’t grow above trend near 150,000 or more – in spite of any changes in the headline number.
Stocks have dropped in the last few minutes of trading two days in a row. A sharp decline today would signal further short-term weakness which could be a buying opportunity for next week. We are still monitoring the financials, the euro vs. the dollar and we also carefully watching the IWM -small caps exchange traded fund which is at attractive levels for long positions.
At 2:35 pm the S&P 500 was down -16.50 to 1,358.82.