Today, the ECB announced no change of the benchmark interest rate. The Bank of England announced another GBP75b of quantitative easing. In an interview with BBC, the governor of BoE said that the quantitative easing is necessary and will work for the economy. They are being proactive because the coming up inflation of 4% will be lowered in the next year. The amount of quantitative easing proposed is 40% of the previous QE of GBP200b, and is also equivalent to 52% of the GBP146b of fiscal deficit, which is about 7% of GDP 2010.
The GBP traded lower on the news by about half a percent to the dollar. In the interview, Mervyn King said the economy needed stimulus given that all the major world economies are slowing, even thought inflation was high he felt that was going to come down due to increased VAT.
The Market Today
The US stock market continued its rally from yesterday afternoon. It has been up all day and had a further boost of half percent towards the end of day. The S&P500 closed at a near resistance level of 1165, and russell 2000 closed at 675, which is a very strong resistance level.
On the Dow, we also have a very strong resistance at 11140.
This is probably a good time to sell since there’s no change in the fundamentals. We are retesting the resistance levels since the FOMC meetings. Some stock closed above it’s July resistance level. Sherwin Williams is trading at almost an all time high now.
If the economy is going to slow down, then the company profits are going to be compressed.The fact that the earnings expectations of some of these companies will come as a surprise, and will hurt the stock price.