There isn’t anything particularly bullish but the US and Asian markets were trading mixed so there’s the presumption that if that was the best the bears could muster then the path of least resistance is still higher. There’s naturally some caution building ahead of this week’s main event, the FOMC meeting, and the expectation that the plug will be pulled on QE3.
The logical view to hold is that the withdrawal of the stimulus will be a negative for equities. However, the bulls are seeing a silver lining. The last time the Fed pulled the plug on QE 1 & 2, equities plunged so to prevent a repeat, the bulls will be hoping for something extremely dovish in the statement to placate the urge to dump risky assets. Ahead of the FOMC meeting, the Dow Jones had a relative quiet trading session rising just 20 points to 16836.
The wait and see attitude is the result of the fact that despite widespread expectations of an end to monthly asset purchases, the US officials expressed concerns of economic slowdown. Encouraging is that a dip in oil prices below $80.00 level hardly had any effect on the index.
The European Central Bank announced that it bought covered bonds worth 1.7 billion euro last week in an attempt to spur economic growth in the common area. Although the move was seen as rather aggressive, more stimulus is expected. In the meantime, the euro gained 20 pips against the greenback to 1.2699 with investors feeling at ease that no major bank failed the stress tests.
As oil market remains oversupplied amid a weaker demand, the outlook for crude prices does not look healthy, a feature also endorsed by Goldman Sachs. Yesterday, a brief dip below $80.00 mark, made headlines with market price now at the weakest in more than two years. However, the WTI recovered most of the initial losses, closing 61 cents down at $80.65. News that holdings in exchange traded funds backed by gold declined to the lowest in more than five years, sent the precious metal $4.8 down to $1225.5. It seems the Fed will delay raising rates despite bets they will end QE and that does not bode well for gold prices.