The dollar got creamed on Thursday, shouldn't that be good for the shares of U.S. multinationals?
(Not really, it turns out.)
Oil surged 3 percent, shouldn't that be good for the shares of the beaten-down energy sector?
Treasury prices dived, doesn't that signal a flight from safety to risky assets?
(You get the picture.)
Ah, who knows anymore, especially when the leaders of the two most important central banks are talking to the world on same day. Certainly one of them is to blame, right? Sure, why not.
The European Central Bank's Mario Draghi has taken most of the heat, even though he's the one still dishing out stimulus while Janet Yellen is getting ready to turn down the volume on the party stereo that everyone's been dancing to for the last six years.
The takeaway consensus among the market pundits was clear: How central banks communicate policy is almost as important as the policy itself. Yellen has been telegraphing the notion that there's a good chance of a liftoff in the federal funds rate this month, while Draghi failed to deliver the big dose of monetary adrenaline that everyone had come to expect.
Draghi, he of the famous "whatever it takes" promise, was being looked upon as the new global markets risk manager, as Simon Kennedy wrote before the announcement. All economists in a recent Bloomberg survey said the central bank would add stimulus, with predictions including an extension or expansion of its bond-buying program. The central bank extended the program but didn't expand it, maintaining the current rate of 60 billion euros a month.
The result was carnage throughout the markets, notably for European sovereign bonds, where 10-year yields jumped more than 20 basis points in France, Italy, Spain, Portugal and the Netherlands. The euro strengthened the most against the dollar since 2009; most European national benchmark stock indexes were down 2 percent to 3 percent; and the Dow Jones Industrial Average tumbled more than 250 points.
So had Draghi's mouth gotten ahead of him? It appears so. But one defender is a guy who used to hold his job, former ECB President Jean-Claude Trichet. He told Bloomberg TV's Mike McKee that the market would come around to the notion that the ECB's action is a positive in the long run.
"I expect the market to recognize that these were really, really decisions that count," he said. "I really trust the short term should not be considered in anyway an important reaction."
That's easy to say for a guy who's not looking at an ugly P&L statement for the day, but he's probably right. Thursday's tape had all the hallmarks of short-term spasm as long-dollar crowded trades were unwound in a hurry and other positions were sold off in collateral damage.
That's not to say all those asset prices will reset immediately on Friday. As August's volatility in the stock market after China's surprise yuan devaluation showed, ripples from currency shocks in other markets can take a while to settle down.
Yellen is up next and facing a critical jobs report on Friday before big decision time on Dec. 16. Let's see whether she will be the next central banker to throw the market a curve ball when it's expecting a fast ball.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Michael P. Regan in New York at firstname.lastname@example.org
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