Chinese officials woke up this morning in a rate cutting mood. China surprised markets with a 25 basis point cut in an attempt to spur slowing growth. The markets cheered early, commodities rallied and everyone was happy. This surprise rate cut was a beautiful volleyball set up for a Bernanke spike! But Bernanke looked at the ball, yawned and said “No thanks, not at this time. If things get worse then I’ll spike it” (I think those were his exact words when he addressed congress this morning).
So now both Bernanke and Draghi of the ECB have down played easing in the near term. Like a parent trying to teach their child to ride a bike, they said “we won’t grab you unless you absolutely need us”. Well the markets don’t like to ride their bike that way clearly or they think that they are about to hit a bump and do a somersault over the handle bars, because after Bernanke’s statements the markets quickly came off their highs.
The markets are going to be choppy and next couple of weeks are going to be a roller coaster ride, with Euro summits, Fed meetings and greek elections. All eyes on Europe, I’d be holding my cash on the sideline and wait for things to clear up. Its better to miss some upside, than to jump in and be there for all the downside.
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