Yet the sudden success of the perceived hawkishness of ECB is making them nervous even as they seemed to let the air out of the commodity bubble that the ECB helped create. It seems that now the ECB is saying that Mr. Trichet did not want to seem that dovish. European Governing Council member Ewald Nowotny said that the market's interpretation of comments by Mr. Trichet was an "over-interpretation." He went on to say that, "There can be no idea about being dovish."
Yet the birds have already been released and the bulls have been battered. The truth is that anyone that had any doubts that central bank action is a major factor in pricing, commodities market action yesterday and today should teach you a valuable lesson.
So now with a major potential shift in the fundamentals of rate outlook and currency outlook, we can focus on the old fashion supply and demand fundamentals that most old time traders are more familiar with. We also got great news on that front and it was also very bearish. It was reported that despite the turmoil in Yemen, they will export their full amount of oil. There was also a report that not only would OPEC increase oil production, but they might even raise their quota to legitimize current overproduction according to a Reuters report.
In the meantime as the commodities melt down, remember the long-term bull story has not ended. The parabolic bull market has ended, but now the commodity markets will have to rise on demand that will be inspired in part by more reasonable prices that are not pumped up by out of whack central bank policy. For drivers that means retail gasoline prices are coming down soon and this might act to reverse the damage that we saw occur in our non-manufacturing sector and it should start to repair itself.
Drivers over the Memorial Day holiday will get a break because, barring another disaster in the Middle East, we probably have seen the high price for gas for the year. The ECB and their more dovish tone will also reduce the odds that a slowing economy will force the Fed into a QE3. Weaker commodity prices are just the stimulus that the economy needs right now and while there are still supply issues with food and risk in the Middle East, the cushion from a stronger dollar may help.
Now if we could only get the US budget under control and the Chinese to float their currency, we might be well on our way to putting this economic crisis behind us.