Sluggishness in the US labor market has been the spark of the idea of further QE, with the August’s NFP figures at just +96K being the last drop in a glass full of disappointing data.
“Further, the Fed stated that if the labor market does not show improvement ‘additional asset purchases and other policy tools’ would be employed as appropriate until such improvement is achieved but ‘in the context of price stability’”, remarks A.Lohmann-Rasmussen, Chief Analyst at Danske Bank.
Gareth Berry, analyst at UBS, sees the effects on the greenback: “Consequently, the dollar's sensitivity to employment-related data releases is likely to increase significantly in future. Fed members revised their growth and inflation outlook upward in 2013, after factoring in the effects of this latest stimulus. Forecasts for unemployment rate, however, remained hardly changed at 7.6% to 7.9%”.
Unforgettable week so far for the euro: following the German Parliament ruling on the ESM on Wednesday, yesterday’s Fed decision to expand its balance sheet permanently has catapulted the euro to fresh 4-month highs in the boundaries of 1.3120, after bottoming at 1.2754...on Monday!
But remains a bitter aftertaste: the euro impressive bull-run is not self-propelled, ages away from that. Market participants should note that the weakness in the greenback is solely behind this rally, and that as long as the USD remains under heavy punishment, EUR bulls will be exultant. A glance to the situation in the euro zone would be enough to bring back traders to the not-so-rosy reality: Spain continues to buy time as long as the yields in its benchmark bonds are out of critical levels - thanks to the ECB’s announcements last week – against a backdrop of increasing number of regions asking the central government for help. The omnipresent Greece, and the almost confirmed rumors that a third bailout will be needed, as actually the Hellenic Republic can only pay 22% of its bills. All of the above within a context of deteriorating fundamentals in the euro zone, denting investors’ confidence, and increasing inflation and unemployment (has anybody mentioned stagflation?).
Meanwhile, stocks soar…
US stocks markets are printing multi-year highs, with the S&P orbiting the 1,465 pts and the Dow near 13,600 pts as of writing. European markets are all in the green as well, with the French CAC40 outscoring its German DAX30 and the FTSE100
…Gold in 7-month highs hovering over $1,770/oz,
…and WTI near the triple digits at $99.87/ bbl