Markets rally on Draghi's encouraging words

(Posted 28 July 2012) US markets moved higher last week as ECB President Mario Draghi reiterated his unwavering support for the Euro. Investors took this as a sign that more stimulus would be forthcoming from the European Central Bank and pushed stocks higher as the Dow rose 2% closing above 13,000 for the first time since May. The Dow closed at 13,075 while the S&P 500 finished the week at 1385. It was a somewhat different story on Indian markets as a weaker than normal monsoon fueled inflation worries and made a rate cut more unlikely. The Sensex lost 2% closing at 16,839 while the Nifty ended the week at 5099. The late week gains arrived later than expected as I thought the midweek Mercury-Jupiter aspect would act as a magnet for optimism. As it turned out, however, the aspect marked a shift away from the early week pessimism. Stocks rose sharply after Dragi’s remarks on Thursday.

While markets may have felt the warm embrace from Draghi’s reassuring words, there is still a big difference between words and action. Stocks may rally for a couple of days from such central banker jawboning, but any kind of sustainable push higher will likely require new policy initiatives. The ECB is scheduled to meet on Thursday this week so it is possible that some new plans will be announced. Actually, this week will have central bankers firmly in the spotlight as the US Federal Reserve will release its latest policy statement on Wednesday while the Reserve Bank of India is slated to do the same on Tuesday.

It is quite appropriate then that we should see Saturn front and center this week as it changes signs and enters sidereal Libra on Thursday. While Saturn is said to be exalted in Libra, I think our more pressing concern lies with the ingress itself. All other things being equal, Saturn sign ingresses tend to be bearish for the markets since they represent a surplus of its caution and pessimism. Just how this Saturn energy is likely to manifest this week is not completely clear, however. On the face of it, a strong Saturn would tend to suggest that more stimulus is unlikely. This may mean that the Fed and the RBI do not announce any new rate cuts or easing measures. The ECB is in a somewhat different situation. While it could announce easing, it may also have some new policies it could enact to mitigate the current banking and debt crisis. It is conceivable that these needn’t be directly tied to easing and money printing. Nonetheless, the prominence of Saturn this week does suggest an increase in caution and that is probably incompatible with a major new stimulus measure.

Jupiter is better seen as the planet of easing and stimulus. It was prominent in most if not all of the major stimulus announcements in 2009, 2010 and 2011. Currently, it is moving away from its aspects to Uranus and Pluto. These aspects have helped to boost most global markets in the month of July but now it seems their effect may be diminishing as the aspects separate.

What is particularly intriguing this week is that we have a replay of mid-May when both Venus and Saturn changed signs within a couple of days of each other. While stocks moved higher for a day or two around this rare simultaneous double ingress on 14-15 May, stocks generally declined both before and after. This time around Venus will enter Gemini on Tuesday two days before Saturn enters Libra. Unlike the situation in May, Venus will not be stationing here so that may weaken its effects somewhat. Venus sign changes are generally a more positive phenomena, so it is not unreasonable to expect some gains in the early week period. As Venus moves deeper into Gemini, optimism is more likely to fade as Saturn assumes are greater role in the proceedings.