23 Jan Cautious float
The markets have stabilized after yesterday’s volatility that was sparked by the announcement out of the European Central Bank that they will be buying assets valued at $60 billion euro per month until September of 2016. This program, which is similar to the US Central Bank’s Quantitative Easing, will hopefully push European bond investors out of European bonds and into US bonds. That would help maintain low interest rates here and will also help further fuel the US stock market. However, it’s too early to know for sure if this will be the case. The unknown impact has created much higher than normal levels of volatility in the US bond market, as investors are currently unsure as to how the impact of the European asset purchase program will impact the markets here at home.
Oil prices continue to dominate the headlines, with gas prices at the pump now holding stable at current levels. Yesterday’s announcement of the death of King Abdullah, the Saudi Monarch who is credited with modernizing their local economy, initially caused oil prices to jump higher. His younger brother Salman is now King, which created an initial concern. However, prices stabilized once the markets realized that his brother’s policies will be pretty much status quo. With prices now near $46 per barrel, it seems there is a bit more room for prices to fall before they move higher. As we mentioned yesterday, once prices move higher that will add upward pressure to mortgage rates and help fuel the US stock market. Many see $40 per barrel as a target and a good opportunity to invest in oil again.
With bond prices stabilizing after hitting the bottom of the current channel, we now have an opportunity to carefully float for a bit to see if bonds can muster the strength to make another run higher. This is in line with our standard policy of locking when at the top of a channel and floating when at the bottom. However, be ready to lock should markets turn negative as they often do in volatile times.