By Bryan Rich
October 23, 2017, 4:00 pm EST
We talked yesterday about the move in interest rates. We have the collision of two big events nearing for the interest rate markets.
Event number one, as we discussed yesterday, is the President’s decision on the next Fed chair. Event number two will come tomorrowmorning with the European Central Bank meeting. The ECB has been setting expectations for the eventual tapering of its QE program.
At this point, the market view is that Draghi and company will tell us their plans to extend the existing end date of QE, but with a methodical decline in the amount of assets they will be buying. Translation: It’s the beginning of the end of QE in Europe.
Why is that important? When the Fed (Bernanke) first uttered the words taper in May of 2013, U.S. yields went crazy – rising from 1.61% to 2.74% in two months, topping out just above 3% in the months following. Stocks were hit for about 8% in the month following the taper talk.
Could it happen in Europe? Likely. As we discussed yesterday, the 10 year yield there remains under 50 basis points, and 2 year government debt has a negative 70 basis points yield.
Will it hit stocks?
The world is in a different place now. And the ECB isn’t the Fed. But it’s safe to expect that there will be speculators with a finger on the trigger trying to sell stocks on an ECB taper theme, assuming that is discussed tomorrow.
With this in mind, ahead of tomorrow’s ECB meeting, we get this in stocks today…