Draghi's strong signal propels stocks

The European Central Bank president encourages investors with his 'whatever it takes' promise.

By Jim J. Jubak Jul 26, 2012 2:36PM
Thursday morning's stock market action was exactly what I meant when I said watch out for event risk.

European Central Bank President Mario Draghi confirmed in a speech Thursday that the ECB is committed to defending the euro -- and stocks roared ahead.

Post continues below.
Draghi's stirring words at a London conference? "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. Believe me, it will be enough."

The European Central Bank has the power to intervene in the bond markets by buying Spanish and Italian bonds in the secondary market. It has the ability to extend more loans to European banks. It can cut interest rates again.

But we knew all that. And we also know that there's substantial opposition at the central bank to each and every one of these actions.

Will the bank move at its Aug. 2 meeting? Will Draghi announce anything at all at the close of that meeting?

No one knows.

But Draghi's comments reminded traders that the meeting is just a week away and that the European Central Bank could take action that would put everybody who has made money in recent weeks betting against the euro, and Spanish and Italian bonds, and European stocks in danger of giving back all or most of their gains.

So Thursday, we got a new wave of buying as traders squared their positions -- when you've been short, you get back to neutral by buying. And you move to neutral right now because you think the ECB might do something on Aug. 2 (the Federal Reserve's Open Market Committee meets on Aug. 1).

I don't see a lot of "somethings" that the European Central Bank can do on Aug. 2 that would have a lasting effect on the euro debt crisis. Which argues that after the meeting, the markets will swing back to a downward trend. But at the moment enough traders have decided they don't want to be short this market to give us the potential for a week of upward trending prices.


At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own shares of any stock mentioned in this post as of the end of March. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

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8Comments
tmbz
Jul 26, 2012 3:43PM
avatar
I don't understand the stock market. It's up over 200 points today just because The European Central Bank said they are committed to saving the euro. But, they didn't say HOW. They don't have the money to save all the countries that are nearing default. So how is it going to be saved? Just because they said it would? Where will all the money come from?
No-bueno
Jul 26, 2012 4:17PM
avatar

This is ridiculous. Stocks go up on a "promise" HA-HA really?????? how many times have the governments of the world promised to make things "better/stable" and fail to do so yet the stock market gamblers/ idiots run to buy stocks on a undetermined promise. He's promising to "save the Euro" yet the only REAL way to save the Euro would be to have steady job growth, pull Greece out of it's debt, and bring down Spains crazy 25% unemployment rate. Until the PEOPLE of Europe are working than there really is no point in trying to "save the Euro" just by printing money and erasing the debt which is most likely his plan.

Gary Myers (gmyers)
Jul 26, 2012 4:11PM
avatar

It fascinates me that we are so gung ho about somebody elses using stimulus and

bailout to save their collective butts, but most on this forum and in the conservative

crowd in this country frowned on us using it here to save ours.  Yet they are will to let what is happening in Europe drive our stock market.

 

Fascinating.

 

 

Active RIA
Jul 26, 2012 8:46PM
avatar

oh COME ON no-bueno - this is much more than a "promise" - this is one-hundred percent pure virgin ultra-premium Hopium. 

 

guaranteed to get everyone where they want to go ...

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