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MLR - Premarket Pulse March 7, 2013

After a follow through day on the NASDAQ Composite, the general market averages finished mixed in a constructively tight trading range for the NASDAQ. However, the S&P 500 traded higher volume as it held tight, which could be interpreted as churning action. However, further evidence is necessary before one can draw any firm conclusions from such action given that it also occurred on volume that was below-average for the S&P 500. The last time the market gapped up to higher-highs on January 2, it spent several days consolidating the move, so similar action this time around would not be abnormal.

Wednesday's economic news showed February ADP private sector report stronger than expected. The $85 billion in spending cuts will be given flexibility in how they are handled, and the House passed a bill to prevent a March 27 government shutdown. This makes the sequester issue a secondary one, but the market had already telegraphed its own lack of concern prior to the deadline.

The Bank of England and European Central Bank are both holding meetings to discuss possible rate cuts. Most analysts expect both the BOE and ECB to keep rates at current levels. The base rate in the UK is at 0.5%. Discussion has taken place in the UK on cutting rates to less than zero over time if necessary. The BOE has had an easy money policy so an additional rate cut would not come as a surprise. Easy money policy has been the way of things in debtor nations, thus helps prop stock markets higher and currencies ultimately lower in the long run. The intended effect of jump starting the economies in the US, UK, and Europe have not been seen as money creation gets hoarded rather than invested. There will be a price to pay for fictitious "wealth" creation, but in the meantime, the morphine drip continues to make the patient feel better.

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