When Doves Cry (Part II)

I wrote back in June about the dovish Central Banks and the market expectations for rate cuts. The lyrics to the song by Prince seem to hit home when I think about the current ECB dilemma. The dilemma being, doing more of the same in terms of negative rates and QE:

How can you just leave me standing

Alone in a world that’s so cold (so cold)

Maybe the market is just too demanding

Maybe I’m just like the BOJ, too bold

Maybe I’m just like the Fed (The markets never satisfied)

Why do we scream at each other?

This is what it sounds like

When doves cry


We at Minter think that the .10 bp cut and the 20 billion per month bond purchasing, together with the tiering was something for everyone.

  1. Germany is happy they didn’t go more in on bond buying, and probably thinks that tiering is a good thing
  2. The rest of Europe was happy to see lower rates, extended LTRO and open ended  QE
  3. The market seems to be ok with the moves as equities drift higher, Euro bounced to test 1.1100.  Euro government bonds rallied a bit.

Where do we go from here:

  1. The process is started in terms of QE, the heavy lifting will wait for the new ECB head, Lagarde, starting November 1st
  2. There will continue to be a heavy push on the governments of Europe to use fiscal policy (those that can afford it)
  3. We feel the ECB is getting to the end of the road, and needs trade or global growth to meet 2% target of inflation.
  4. The Fed on Wednesday, expect .25% and signal of more to come. 
  5. Norges Bank on Thursday, we expect a hike of .25%, market is 50/50 in terms of expectations.

Key charts:

The USD index has key support for us between 97.40 and 97.60.  A break below would open up for a test lower.

The S&P 500 is testing the old highs and a break above 3,040 would set up a test higher.

Gold, having returned to it’s range of 1,490 / 1,525 is in holding pattern awaiting news on trade and the Fed.

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