David Song studied macroeconomic policies under a visiting scholar at the Federal Reserve Bank of St. Louis while attending the Zicklin School of Business at Baruch College, and graduated with a Bachelor of Business Administration degree majoring in finance. During his undergraduate program, David acquired a strong understanding of technical analysis from a former-president of the Market Technicians Association, and incorporates both fundamentals and technicals in his analysis. After starting at DailyFX.com, David authors the daily briefings for the U.S. Open as well as the Trading the News report.
Were the decisions taken by EU officials at the last summit so general and easy to discredit that they will serve only to buy the area time?
The outcome of the last EU Summit provided short-term relief as the group made a greater push towards fiscal integration, but the move has only helped to buy time as European policy struggle to restore investor confidence. As Spain’s 10-Year yield climbs back above 7 percent, the development suggests that market participants are unconvinced that the new agenda will solve the debt crisis. The group clearly needs to address the solvency issue rather than just throwing money at the problem as the fundamental outlook for the region turns increasingly bleak.
Is the 120 billion euro growth compact agreed upon at the EU summit sufficient and possible to mobilize quickly enough to stimulate growth and employment in the short term?
There’s a lot of uncertainty surrounding the EUR 120B growth pact as only half of the total sum will be available for immediate use. The implementation of the extraordinary measure may turn out to be a tedious process as the governments operating under the fixed-exchange rate system continue to act in their own interest. As the group struggles to meet on common ground, there’s limited scope of seeing a timely response from the EU. We may see the European Central Bank continue to embark on its easing cycle throughout the second-half of the year as growth and inflation wanes. Indeed, there’s speculation that the ECB will move towards a zero-interest rate policy (ZIRP) in an effort to shore up the ailing economy, but the Governing Council may have little choice but to implement a range of tools as heightening borrowing costs across the region raises the threat for contagion.
Do you think that recent unfavorable data from the US might push the Fed to adopt QE3, despite the fact that they have just extended Operation Twist?
Although we’re seeing a slowdown in the U.S. recovery, it seems as though the Fed’s decision to extend ‘Operation Twist’ may conclude the easing cycle as the world’s largest economy gets on a more sustainable path. Although Fed Chairman Ben Bernanke continues to keep the door open for additional monetary support, the FOMC certainly has limited scope to push through another large-scale asset purchase program as the stickiness in underlying price growth raises the threat for inflation. Indeed, we saw the U.S. Non-Farm Payroll report for June disappoint as employment increased 80K versus forecasts for a 100K expansion. We may see the Fed take note of the 2.0% rise in wage growth as it marks the fastest pace of growth for 2012.