8/2/12 1:27 PM – US Investors Disappointed in ECB Comments

The stock markets in the US dropped sharply on the opening of trading today, the bounced slightly and continued lower, though right now stocks are a bit off their lows of about 30 minutes ago.

I had mentioned in earlier posts that we had back to back meetings of the world’s most powerful central bankers. Investors were looking for dramatic steps to be announced by both but did not get them. The Federal Reserve meeting concluded with a subtle change to the statement from last time.

The European Central Bank (ECB) meeting ended with Mario Draghi saying they were working on a plan but had no specifics. Since Draghi had made a dramatic announcement a few days ago that the ECB would do all that was necessary and also hinted at buying trouble Italian and Spanish bonds, hopes were high for today’s announcement.

People want to know what the plan is and wonder if it will make it past the fiscally conservative Germans to become reality. Those concerns were not addressed today in any forceful way and hence the 2% selloff in afternoon today in Europe today and the selling when the US opened for trading. Basically, today’s European losses just gave back the gains since Mr. Draghi’s announcement last week.

I think we will see the ECB directly buy Italian and Spanish debt and that should push down rates in those bonds for a while. How long approval for that program will take, I’m not sure but it should be sometime in the next month. That is, unless the Germans and Finns shoot it down.

That is the main issue in Europe right now and European stock market reactions will affect the US as well. The other thing US investors are watching is the slowing economic data for the US, to see if it continues to slow, stablizes at this rather low level or picks up again as it did last fall. Fed Chairman Bernanke’s scheduled talk on 8/31 in Jackson Hole will also be very closely watched.

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