Investors are looking to central banks help ease concerns about
global growth. The European Central Bank (ECB) did not oblige today
by cutting interest rates, but the markets will still be looking
for clues to the central bank's future course of action in Mario
Draghi's press conference.
The ECB is no doubt in the spotlight today, but investors are also
pinning hopes on the Fed to do its bit following the recent run of
soft economic readings. Bernanke's testimony to a congressional
panel on Thursday could potentially provide some clues to his
thinking ahead of the Fed's meeting on June 19th and 20th.
The ECB's decision today to keep rates unchanged despite compelling
economic rationale for action otherwise is disappointing. All key
economic indicators are pointing towards a deceleration in activity
levels, with even Germany now showing signs of loss of momentum.
And while Inflation readings remain above the central bank's 2%
target level, they are trending lower.
Readings of purchasing managers and business confidence across the
region shows a particularly soft start to the second quarter and
retail sales are declining. There is still a pronounced divergence
among the economic profiles of nations such as Spain and Italy on
the one hand and Germany on the other. But the persistent
region-wide air of crisis may be having an impact in Germany as
The tools at the disposal of the ECB include direct interest rate
cuts like the one on the docket today or other indirect but
potentially more beneficial actions like further funding for the
region's banks or direct purchases of government bonds. The central
bank has not done enough bond purchases given constraints on its
ability to lend directly to member governments, though it has done
some purchases over the past year or so.
The central bank's LTRO program, where it pumped €1 trillion in the
region's banks through installments appeared to be the most
beneficial as it helped improve confidence in the financial system
and had a pronounced impact on member countries' borrowing costs,
but the impact has not proven enduring enough.
But it's perhaps unfair to expect only the ECB to provide a path
out of the current Euro-zone problems when the region's leaders
themselves have proven unable to find common ground. The ECB
interest rate decision today could be read as asking the region's
politicians to take the lead.
With crucial elections in Greece coming up and another
supposedly major summit meeting later this month, the markets are
desperate for direction from the region's political leadership.
They have been wanting thus far in showing any level of urgency,
but many feel that the window of opportunity may not be available
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In corporate news,
), the maker of Jack Daniels and other alcoholic beverage brands,
came short of earnings expectations.
Bob Evans Farms
) came out with better-than-expected earnings after the close on
Tuesday, but missed revenue expectations and provide weak guidance.
We also have results from homebuilder
) coming out today.