Last night and this morning we were able to see what happens when a central bank does “less than expected”. Last night, European Central Banking superstar, Mario Draghi dropped rates by only .1% to -.30% and promised he would only extend the €60b a month QE bond buying program to March 2017!
The response from markets was wrong-footed carnage! Carnage in FX, carnage in Bonds and Equities. Australian main equity index’s off by almost 2% in early trade this morning.
This response leads us to a bigger question: has this put the never ending determination of the US Fed to raise rates on the ropes?
Aren’t they going to raise because of the “awesome recovery”?
Maybe the US Fed will postpone the dreaded rate rise due to, wait for it, “a deteriorating geopolitical environment”? This very well may be the only way to preserve a shred of cred.
Ironically, a failure to launch a rate rise will be “bullish” for equity markets as the next course of action will be, of course, MOAR!
Let’s have a look at some more of this awesomeness. (charts from Bloomberg and ZH).
RECOVERY!
More recovery
Credit Markets get what’s going on. 
The last time the world was this short in Treasuries, the 10Y yield collapsed from 3.94% to 2.39% in just 3 months.
Simply put, The Fed has created – through its constant communication and confusion – the biggest bear trap for bond traders… if a hike does not come in December, 2010’s yield collapse could look like a stroll in the park, especially in the newly illiquid normal.
Once again, credit markets definitely get what’s going on! The following reference to CCC or below can otherwise be known as Junk Bonds. Generally (in the past undominated Central Bank world) this is where domino’s start to fall first.
Have a nice weekend.
Aurum Echo 
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