The light switch nature of the present day financial markets is alive and well. During Tuesday’s session the S&P 500 was down 21 points intraday with the markets looking very vulnerable. Add in a market friendly Fed story from the WSJ and this morning’s comments from the ECB and you flip the switch back to “risk on”. From Bloomberg:
European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the euro, suggesting they may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-nation currency bloc. “To the extent that the size of these sovereign premia hamper the functioning of the monetary policy transmission channel, they come within our mandate,” Draghi said in a speech at the Global Investment Conference in London today. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he said, adding: “believe me, it will be enough.” Economists said the comments suggest the ECB may be preparing to unveil new measures to fight the crisis as potential bailouts for economies the size of Spain and Italy threaten to overwhelm Europe’s rescue funds.
We are happy to remove our relatively small hedge should today’s euphoria hold for more than a few hours. After the Fed article stemmed the recent decline, the S&P 500 was able to avoid making a significant lower low in terms of trends.