Well, what a lousy week in the stock and European bond markets that was. The S&P recorded its first weekly close below the 50 week moving average (wma) in a year, as viewed on the weekly chart below.
The S&P 500 is also sitting below the 200 day moving average (not shown below) and bounced off it twice from below, once in late May and again on Thursday. It was soundly rejected both times. It now seems probable that the rally over the past year was an ordinary bear market rally – albeit a long one fueled by the trillions of dollars in stimulus and thin-air injections – and is over and done.
So the question is, what next?
The G20 Shocker
As pronounced as the stock market volatility has been, there are much bigger stories out there right now. The biggest came out this morning and told of a pronounced departure of policy in the G20 that has far-reaching implications:
G20 drops support for fiscal stimulus
June 5 2010
Finance ministers from the world’s leading economies ripped up their support for fiscal stimulus on Saturday, recognising that financial market concerns over sovereign debt had forced a much greater focus on deficit reduction.
Wow.
That’s an enormous departure from past policy and creates an enormous gap between major countries, primarily the US , UK and Japan on one side and everybody else on the other.
Consider that the US and the UK are currently running deficits well north of 10% of GDP and are politically committed 100% to continued stimulus as the means to stoke domestic demand. But along comes the rest of the world, saying that they are now committed to living within their budgetary means.
Worse, these converts to fiscal sanity have even thrown in the towel on the very idea that stimulus works:
The communiqué of the meeting made it clear that the G20 no longer thought that expansionary fiscal policy was sustainable or effective in fostering an economic recovery because investors were no longer confident about some countries’ public finances. “The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability,” the communiqué stated.
by lemonyellowschwin 
