Global Macro: When Bernanke Speaks, We All Listen
In late May, the Federal Reserve released what looked to be foreshadowing comments about an end to quantitative easing, and more recently the Bank of Japan failed to relieve the volatility that had crept up in Japanese markets. With central banks playing such an important role in the daily movements of financial markets, anything they say or fail to say is sure to incite a fury of activity.
This week Fed Chairman Ben Bernanke will speak on Wednesday, and investors hope he clarifies his statements from last month in order to bring back stability to world markets. The Fed may be the first to rein in stimulus among the world's major central banks, but actual tightening does not look to be a viable solution until possibly 2014.
The first chart to study below is of S&P Equal Weight ETF
The pair has traded sideways much of 2013, a testament to the uncertainty investors have felt as equities have reached record highs. The two variables that have most contributed to equity markets strength this year have been central bank stimulus and solid company performances.
Corporate performance has been pretty steady, but with earnings season over and the potential end to central bank stimulus, investors have taken profits and moved to the sidelines.
The pair below has pulled back into its consolidation region as investors have taken profits at all-time highs, and chosen to wait for reassurance from central banks before reentering. It is likely that this pair will pull back even further leading into an economic heavy week for the U.S. and of Bernanke's speech on Wednesday. If Bernanke gives the reassurance that investors are looking for, this pair should continue move higher and risky assets across the world will benefit.
Currency markets have similarly played an important role in determining investor sentiment over the past few weeks. A stronger yen led to volatility in Japanese equities, and uncertainty over the Fed's next policy move led to U.S. dollar weakness.