First, the important news: in a few hours the Fed will inject between $1.25-$1.75 billion into the stock market. More importantly, it is a Tuesday, which means that in order to not disturb a very technical pattern that will have held for 20 out of 20 Tuesdays in a row, the Dow Jones will close higher. Judging by the futures, this has been telegraphed far and wide: it is a Ben Bernanke risk-managed market, and everyone is a momentum monkey in it.
To summarize, it’s a central bank world indeed with central banks in the Central European Union having cut interest rates to record lows in recent months and a further adjustment is possible. Central banks in Hungary (MNB) and Poland (NBP) may still cut key interest rates. MNB may today cut by 25bp to 4.50% while next week NBP may cut its key rate by 25bp to 2.75%. The Czech central bank’s key interest rate is close to zero, so its next policy tool could be FX intervention.
And since nothing but asset bubbles remains, the FT reminds readers that the proportion of “covenant-lite” loans has soared to more than 50% of all leveraged loan issuance so far this year, twice the level seen during the last boom in 2007. So far this year, $129bn of leveraged loans have been sold with covenant-lite features, up from $22bn in the same period last year, and $96bn for the whole of 2007 according to S&P Capital IQ data. On a related note, Bloomberg reported that an ever increasing number of companies are tapping the loan market to pay dividends.
And just to make sure that the market closes well green today, the only actual “data” will be yet another reading of consumer “confidence” this time from the Conference Board. Expect this to surge on news that it is Tuesday and stocks have nowhere to go but up, which in turn will send stocks, where else but, up.