Price Action Vs. Central Bank Speak Since Bernanke Taper Talk
Richard Shaw | Jul 14, 2013 06:59AM ET
Benjamin Graham once said that markets are voting machines in the short-term and weighing machines in the long-term — sentiment vs fundamentals. These days, the primary driver of sentiment tends to be central bank statements and actions — with mere statements having huge impact.
If you have doubts about the market impact of central-bank-speak, just take a gander at this calendar of central bank statements compared to market price action:
- 05/22 Federal Reserve president Ben Bernanke said that a tapering of quantitative easing could begin later this year if conditions warrant
- 06/18 European Central Bank president Mario Draghi said he had an open mind to doing what was necessary
- 06/19 Bank of Japan president Haruhiko Kuroda said they are taking steps and felt things would work out
- 06/20 Peoples Bank of China governor Zhou Xiaochuan added liquidity to their banking system to relieve a liquidity crunch
- 06/21 St. Louis Fed president James Bullard said QE could actually be increased if inflation slows
- 07/10 Federal Reserve president Ben Bernanke said the economy needs the Fed’s easy-money policy “for the foreseeable future.”
Now let’s look at price movements on the day after each of those statements/actions:
US Stocks
Bernanke frightened the markets, and other central banks stepped in with voice and cash to stem the decline, followed by a dovish “clarification” by Bernanke yesterday. It appears that all is well for now, at least as far as central bank driven sentiment is concerned.
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