- Four seemingly unexciting but important items unfolded Wednesday.
- The ECB lent €442 billion ($621 billion) to European banks at a very low 1%, highlighting improving European banking confidence.
- The Fed finished its two-day FOMC meeting with few surprises.
- An auction for five-year US Treasuries revealed strong demand for US debt.
- US durable goods orders handily beat expectations, hinting the worst may be behind us.
- Investors often mistakenly expect the market to move on earth-shattering news when subtle positives like these pave the road to recovery.
Our minds naturally cling to high-profile headlines about blustering dictators and prophetic pronouncements at expensive luncheons. But just because something is headline news doesn't mean it's the most important story for stocks. The meatier news often slips by unnoticed—perhaps deemed unexciting. After all, bear markets generally end and bull markets begin in a "V". After the terrifying ride down—filled with big-bang news stories—investors often miss the non-headline grabbing news that can drive markets up the right-hand side of the V. And on Wednesday, four of those seemingly unexciting but encouraging items unfolded. The most important came from Europe.
The European Central Bank (ECB) surprisingly lent a whopping €442 billion ($621 billion) to European banks at 1%—a very low rate. No one anticipated the auction to be so huge because prior ECB measures had been significantly smaller. But demand for the cheap money was through the roof—demonstrating banks want to borrow now while the borrowing's good. This fresh liquidity infusion is a shot in the arm for a sluggish economy and should help keep borrowing costs low in Euroland. And banks lining up at the trough signals their confidence they can return to profitable lending. All tremendous positives.
The other side of the Atlantic saw more underappreciated positives. The Fed finished its two-day meeting Wednesday with few surprises. They kept key interest rates unchanged and plan to hold them exceptionally low for an "extended period," citing subdued inflation pressures. In other words, deflation appears to be off the table as a near-term risk, and inflation is still a ways off, if it arises at all. With the Fed yesterday, no news was good news.
An auction for five-year US Treasuries went exceptionally well. Despite constant rumblings about the attractiveness of US debt, buyers—including foreign governments—gobbled up the offering at a low rate. And durable goods orders handily beat expectations. An unexpected tick upwards in new orders for non-essential goods hints the worst may be behind us.
Investors often mistakenly expect the market to move only on earth-shattering news when in reality it's often subtle positives paving the road to recovery.