ECB Keeps Interest Rates Steady, Euro Falls

The market is lower in early trading mostly on profit taking and a couple slightly weaker economic reports.

This morning Q4 productivity came in at -2.0%, below estimates.  Also unit labor costs increased by 4.5%, well above the 2.4% estimate and a higher figure than we have seen in a while.  Unit labor costs are one of the biggest inflation components, so if this is a trend it could worry inflation hawks.

Asian markets ended mostly lower overnight.  Australian unemployment held steady at 5.4%.  China fell -0.7% to snap its 8-day winning streak.  Next week various Asian markets will be closed in celebration of the Golden Week.  Wouldn't it be nice if our markets closed for a week?

Europe's markets are mixed this morning after the ECB held interest rates steady at 0.75% and the Bank of England held its rates at 0.50%.  The British Chancellor of the Exchequer called for more monetary easing to stimulate growth, but the income BofE governor struck a more hawkish tone in recent remarks.

The dollar is getting a big boost with the euro down today, but commodities are mixed.  Oil prices are lower near $96.25 but gold prices are bucking the trend and moving higher today to $1680.

The 10-year yield is fading back a tad to the 1.96% level.  And the volatility index is up 6% this morning back above the 14 level to 14.25.  But it's still early.

Trading comment: Markets don't go up in straight lines forever, and even strong bull markets need time to rest and rebuild their internal energy.  We have commented recently about bullish sentiment reaching extreme levels on some of the indicators we follow (NAAIM).  We haven't seen much more than a 1-2 day pullback so far this year, but that increases the odds that a more meaningful one is in store for investors.  We have been trimming stocks that have had big runs so far in 2013, and are raising cash levels just a bit.  We would like to see a pullback in the S&P 500 below the 1500 level to be more comfortable putting that cash back to work.  A pullback to somewhere like the 1475 level would be more attractive.  As well, some of the leading stocks that look extended need some time to consolidate their recent gains.  So overall this feels like a spot where investors would be well served to be patient.