The enthusiasm about potential stimulus from the ECB that sent the Dow Industrials and Transports to new all-time highs, continues to fade. The breakouts by the two narrow large cap indices have not been confirmed by any other broad indices like the S&P 500, Dax, FTSE or S&P/ASX which all remain capped just below their 52-week highs and top of their current trading channels. The broader Russell 2000, meanwhile continues to retreat indicating that the troops are no longer following the generals higher. Reports in the press overnight suggest that while the ECB is working on a number of measures to boost the continental economy, a new QE program may not be in the immediate horizon which could be a blow to markets that had priced one in. Even if the ECB does bring in stimulus, if it doesn’t meet high market expectations it could still be seen as disappointing. Inflation reports from the Eurozone were mixed with Germany and holding up while France fell, suggesting that the central bank may not be under as much pressure (ie avoid deflation at all costs) to bring in big stimulus as some think. EUR has stabilized following these reports suggesting that some of the QE speculation may be starting to unwind already. Despite strong growth in UK employment, GBP is falling again today. In its quarterly inflation report, the Bank of England maintained its 2104 GDP growth forecast at 3.4% and raised its 2015 forecast to 2.9% from 2.7%. The central bank maintained its Q2 2015 forecast for the start to interest rate increases (with the Fed likely to move around the same time, 6 months after the end of tapering). Governor Carney indicated that rate increases are likely to be gradual, but more importantly also noted that rising Sterling cuts into exports and that a strong GBP could delay interest rate increases. The selloff in GBP today then really comes as no surprise as this is essentially a repeat of last week’s selloff in NZD after the RBNZ made the same connection between exchange and interest rates. By increasing imports and reducing exports a rising currency tightens economic conditions and does the same job as a rate increase. Conversely a falling exchange rate has the same effect as monetary stimulus. Copper and the Hang Seng rallied overnight after the PBOC instructed 15 banks across the country to accelerate mortgage lending in an effort to stabilize the teetering housing market. AUD and NZD have also been climbing on anticipation that China’s government may start to act more aggressively to get its economy moving again. There has also been a bit of a defensive shift in capital flows with some of the profit-taking in stocks finding its way back into gold which has climbed back above $1,300 and JPY which is outperforming other majors. With stock markets except for the stalling Dow and the rebounding Hang Seng continuing to struggle, it appears seasonal effects continue to at least offset the positive impact of economic news and stimulus speculation. Stocks have started to fall under their own weight once again with demand subsiding. As the battle for dominance continues we may start to see more trading opportunities, particularly as news flow increases heading toward the next ECB meeting. Corporate News Sears Holdings indicated that it has put its 51% ownership stake in what is left of Sears Canada up for sale. Recall that last year Sears sold back its leases in several of Canada’s largest malls back to the landlords to raise cash for the struggling US parent. Macy’s $0.60 vs street $0.59, raised dividend 25%, increases share buyback by $1.5B, but same store sales were (1.6%) vs street 1.4% on weather impact, apparently business bounced back in April Deere $2.65 vs street $2.45 Economic News Economic reports released overnight and this morning include: NZ retail sales 0.7% vs street 0.9% S Korea unemployment rate 3.7% vs street 3.4% Germany consumer prices 1.3% as expected France consumer prices 0.7% vs street 0.9% Spain consumer prices 0.4% as expected Eurozone industrial production (0.1%) vs street 0.9% UK jobless claims (25K) vs street (30K) UK unemployment rate 6.8% as expected UK 3M rolling employment 283K vs street 248K UK inflation report US producer prices street 1.7% Economic reports due later today include: 10:30 am EDT US crude oil inventories street (0.25 mmbbls) 10:30 am EDT US gasoline inventories street 0.15 mmbbls