Well it looks like the markets this morning are growing tired of the “chicken little” scenario and are looking to put their fear aside and take on some risk. At least that’s what happened in the Euro session after S&P downgraded Italy’s credit rating one notch last night.
Asian markets followed yesterday’s risk aversion and pushed the Euro lower overnight, only to watch it rebound in the European session. News was that Greece was in “productive” talks with the troika in regards to receiving their next tranche of bailout funding. Yet not much has changed for the positive, as there still is no resolution to Greece and remains to be seen whether or not they can avoid a default. Greek citizens have taken back to the streets in protest of the austerity measures required to receive the next bailout, so political will in waning to say the least.
Also to note is that German economic data came in worse than expected, with PPI data showing a monthly decline of .3% vs. an expected no change, pushing the YoY number down to 5.5% vs. the expected 5.8%. While lower prices are not necessarily a bad thing, growing concern of a declining economic picture in concert with the debt crisis is alarming. ZEW economic survey figures were lower than expected across the board which should come as no surprise unless you think Europeans are happy that their monetary union may be on the verge of collapse.
In Switzerland, the SECO economic forecasts came out and growth figures were adjusted lower, citing recent Swiss franc strength as an impediment to exports. Trade balance figures were reduced as indeed exports fell from last month as imports gained.
Overnight in Australia, the RBA released the minutes from its rate policy meeting and stated that they were “well placed” to deal with a global economic slowdown or inflation. This essentially is a neutral stance that gives them the flexibility to either raise or lower depending upon the health of the global economy.
Tomorrow will bring the release of the BOE rate policy meeting minutes and any perceived dovish ness could push the Pound lower.
This comes ahead of tomorrow’s FOMC meeting where the market is expected some sort of further monetary easing. The most popular guess is that “Operation Twist” will be unveiled, whereby the Fed will now purchase Treasuries of longer durations to keep rates low for an even longer period of time. However, the market impact of such a move is unclear at this point, and some are starting to think that the Fed may do little.
It is always a tightrope that Fed walks, and the balance between a fundamentally weak Euro and a declining economic picture is one that must be balanced carefully. The Fed got little help yesterday from the President, whose speech about deficit reduction was more campaign rhetoric than anything credible.
At this point, it is painfully obvious that the President lacks any concrete plans to fix the US economy and is just setting the table for the blame game come the next election in 2012. This means things may get a lot worse before they get better, as the economy flounders toward stagnation.
Housing starts and building permits figures came in lower than last month here in the US, though the latter did come in better than expected.
Until the fiscal side of the ledger improves, there is little the Fed can do so essentially this is a crisis of confidence here in the US, with the President playing the role of “Debbie Downer”.
Unless he can come up with some pro-growth policies and not job-killing, wealth re-distributing ideology, things will continue to worsen. Add in the debt crisis in Europe and now you have a recipe for disaster. Unless the Europeans can get their act together, contagion could put the EMU in survival mode, with the outcome (outside of major risk aversion) unclear.
See what I mean about risk-taking today? Confounding, isn’t it?
