At the beginning of this year, I began discussing the technical weakness that was emerging in the markets. Since that time, the markets have remained under pressure leading to a continued cautious portfolio stance.
However, I have reiterated many times since then, interventions by central banks could change the shorter-term dynamic of the markets from bearish back to bullish. This past week saw exactly that as the European Central Bank not only intervened in the financial system but threw everything at its disposal at it. As noted by Ambrose Evans-Pritchard:
“Mr. Draghi pledged to flood the financial system with fresh liquidity for as long as it takes to keep the fragile economic recovery aliveand prevent a deflationary psychology taking hold, yet there was a sting in the tail.
Marc Ostwald, from Monument Securities, said the ECB has bet everything on one last throw of the dice. ‘It’s a kitchen sink job, but at the same time Draghi is saying there is a limit to what they can do, that this is it, and there will nothing more,’ he said.”