With major markets on the move, today a legend in the business sent King World News a powerful piece discussing the real reason why key global markets are trading so violently.
From Art Cashin's notes: "Overnight And Overseas – The Shanghai market exploded to the upside on further speculation of easing and stimulus.
European markets are also spiking sharply higher. Here's an assessment of the remarks that started the European rally (and closing caveat) from my friend, Peter Boockvar over at the Lindsey Group:
European markets are excited this morning because ECB member Benoit Coeure said because many will be on vacation in July and August, thus reducing market liquidity, “the eurosystem is taking this into account in the implementation of its expanded asset purchase program by moderately frontloading its purchase activity in May and June, which will allow us to maintain our monthly average of 60b euros, while having to buy less in the holiday period. If need be, the frontloading may be complemented by some backloading in September when market liquidity is expected to improve again. The slightly higher purchase volume that market analysts may observe in the coming weeks is therefore unrelated to the recent episode of market volatility.”
Thus, the market excitement is not really on any absolute change in policy, it’s just a front running exercise ahead of a very temporary alteration in the velocity of QE. German and French bonds are rallying past yesterday’s decline with bonds in Italy, Spain and Portugal not getting back all of what they lost yesterday. The euro is down a full dollar and the US 10 yr yield is down by 5 bps after rising by 9 yesterday. Coeure did admit that the violent reversal higher in European yields over the past month was ‘worrying’ and he blamed ‘reduced liquidity globally.’ Liquidity is certainly an issue but it will also be used as an excuse to explain why a position goes the opposite way that one wants. Mr. Coeure, meet Mr. Market.
The suggestion that the ECB might boost QE in the next couple of months has also weakened the Euro.
In other assets – Oil is down a bit as are gold and treasury yields. The dip in oil comes even as the situation in the Middle East appears to be deteriorating (and maybe rapidly).
Consensus – On-going computer problems will make these Comments a bit briefer.
The bulls have the ball and foreign markets are bubbling. Let's see if they can develop some intensity. Stay wary, alert and very, very nimble." ***ALSO RELEASED: Richard Russell – Elite Panicking Out Of Fiat Money Into Hard Assets As Central Banks On Verge Of Losing The War In Gold CLICK HERE.
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