The ECB press conference was an unadulterated disappointment. Absolutely nothing was given of any use. Some platitudes about watching and ready to act, but that’s about it. Why he chose to do nothing is a matter of speculation and seems to range from myopic, delusional, under orders from Merkel, or that Goldman was short and instructed him.
His outlook on inflation and what causes it seems bizarre. By doing nothing, he caused the Euro to sell-off, which as far as I can tell is inflationary. Europe seems to be in a perverse situation that printing money would actually likely help the Euro and thus be deflationary. I think he missed a big chance to implement some policy before the crisis has become full blown.
Markets remained somewhat stable on hopes that the Fed would act. The “Fedwire” story from late yesterday and Lockhart’s comments helped that.
Now we are rallying once again on rumors of ESM being given the ability to recapitalize banks directly. Until that comes from Germany, it will be hard to believe.
The only other thing clear about today’s price action is that the market had gotten way too bearish and far too short last week, but this latest rally on dubious ESM rumors will correct that imbalance.
The markets are unlikely to sell off too hard ahead of tomorrow’s testimony by Ben, but we are running out of room to go higher without some actual support.