Foreign central banks have pulled out the big guns over the last three weeks.
First it was the Bank of Japan, which hit the markets with a Halloween surprise. And then China and Europe followed suit…
• At 3:30 a.m. EST on Friday, European Central Bank President Mario Draghi made another bold proclamation — that spurring inflation is “essential” and must be done “without delay.” His language was extremely dovish and reiterated the “I’ll do anything it takes” promise he made a few months back.
• Then, at 5:30 a.m. EST on Friday, the People’s Bank of China announced a surprise rate cut… something they haven’t done in more than two years. The move is clearly a signal that China is worried about its slowing growth and that it’s now committed to stimulating.
The great thing for us is that all three of these moves by foreign central banks are bullish for the U.S. dollar.
And the timing couldn’t be better… we just gave Boom & Bust subscribers a way to potentially profit from this trend in our December issue.
Now, let’s take a closer look at these trends as we go around the market in 10 seconds…
• Global stock markets crept higher throughout the week then enjoyed a nice early-morning boost on Friday, thanks to the central bank announcements. European stocks closed the week with the strongest gains up 3.3% while Chinese stocks lagged, ending the week 1.3% lower. And among U.S. stock indices, the small-cap Russell 2000 is still lagging behind and it suggests that investors’ greed glands haven’t kicked into high gear just yet.
• Bond markets were mildly lower but altogether uninteresting.
• Commodity markets were led higher by a 5.5% gain in natural gas prices. Oil finished the week roughly flat, suggesting some brave, bargain-basement buyers have started stepping in. I still think there’s a bit too much risk in trying to buy oil or energy stocks now. By early next year, the sector will enjoy a seasonal tailwind.
All in all, stocks are enjoying the lift provided by dovish central banks. The S&P 500 is up 6.3% since October 21, when I wrote about the “kickstarter” signal that suggested the bull market should have legs for at least another two to three months.