Mario Draghi spoke at the annual Jackson Hole conference on Friday. His statements, along with Janet Yellen's Friday morning, were supposed to be the catalysts that determined the direction that the market was going to end the week.
Equities had a tough time making their mind up on Friday, despite these two catalysts. The market bounced up and down every other hour it seemed while the U.S. markets tried to make sense of how the global economic machine was going to work for the foreseeable future.
The European Central bank has been following in the footsteps of the Fed and running down the book of things it can do to try and stimulate the economy. After lowering interest rates, the main elephant in the room remains whether or not Draghi is going to want to begin asset purchases; similar to the way the U.S. has. Draghi doesn't seem thrilled, even about the idea of keeping interest rates low. He seems stubborn when it comes to the idea of asset purchases, as he continually avoids getting into too much of the details about what his near term plans are.
Draghi continues to state that the ECB is ready to try other options. Converse to that, he failed to offer any timeline or specifics as to which method the ECB could potentially use to help the situation in Europe. It's a tangled web he is weaving over the pond, no doubt. Meanwhile, countries like Italy remain in the lulls of economic austerity.
What Draghi basically said on Friday, was that he wanted to wait and see how things were going to go before purchasing assets like the U.S. government has. U.S. markets were unimpressed, as we were, and they sold off the last half hour into the close.
While this was taking place, the dollar was strengthening against the Euro:
The Peel's Feel:
We think money is going to move out of equities in Europe for the time being, which we understand. There's no point in being in equities over the pond if the Central Bank isn't committed to helping generate some returns for investors.
We continue to push our stance on gold that we issued Friday morning. Put simply, as the dollar strengthens and gold weakens, we think there's a buying opportunity in the commodity. We'd much rather be in an asset like gold than in the European bond market, which we believe is basically an "anything goes" situation at this point.
Again, we found Draghi's commentary to be underwhelming and unimpressive. We think that Draghi has a unique opportunity to begin asset purchasing and get the European economy back on its feet, but he seems too shy to make a move.
In the meantime, the U.S. market remains slated for a correction, we reiterate.
When interest rates rise here, the dollar should continue to get stronger which could make a nice time to go long against the Euro, as long as Draghi holds his stance.
Contrary to what others think, we think that interest rates will continue to inch up here in the U.S., as opposed to staying relatively low after initially being raised in 1Q 2015.
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