U.S. Remember An Old Problem

The fact that inflation is not posing problems represents an encouragement to continue the asset purchase program. This situation may be caused by the recession in Europe and the slowing growth of China which maintained the price of commodities at low levels. Same for the core inflation, which is maintained between normal parameters. It’s obviously, inflation is not a problem for Fed to consider, at least not on the short term.  On the other hand, the improvement made in the labour market, the increased pace of the monthly created jobs getting close to the optimum level, may lead to the narrowing of QE3 by the end of the year. Another positive aspect sustaining the end of the program is the AA+ ranking of U.S. which recently get a stable outlook by Standard and Poor’s.

If these were good news, here come the bad ones. If the Americans might have enjoyed a few months of accommodation with cuts in domestic spendings and defense, starting with 1st of October they will have to start again the accommodation process because the cuts will enlarge to $19 billion. The question is: in what shape will be the economy of U.S. considering all the changes that will occur during this year? Well, for sure not a wealthy one. Meanwhile, economists enjoy launching theories about the best way that the U.S. economy should be run and when is the best moment to end QE3. In reality, the fragile economy may change plans at any moment.

NFP, the only mover of the market?

“Reasonably healthy”, “consistent”, “inconclusive”! All these are opinions about the today’s NFP which was so expected to come and clarify the direction that the U.S. economy is actually heading. Better than the words are the numbers, so the number of newly created jobs in the private sector is 175k with an unemployment rate of 7.6%. With other words, the economy may be prepared for a reduction in the monetary policy stimulus by the end of the year (implicitly, this “readiness of the economy” involves a NFP equally to 200k).

What was really impressive today, was the German industrial production which was reported at 1.8%, strongly sustaining the increasing trend. Even if today Bundesbank downgraded its outlook for the German economy, officials believe that this may be the start of the recovery, and if Germany is starting to get to better results, then the whole Eurozone will be on its track to recovery. Still in the E.U., today, Greece showed an improvement in its quarterly GDP which came at -5.6%, expected at -5.7%. Investors may want to be attentive at Greece because it may become again a “mover of the market”. Recently, the IMF declared that it might have made some mistakes in handling the Greece’s debt which may be restructured by the end of the 2014.

We Stand Ready To Act

Mario Draghi just had a speech, causing the EUR/USD currency an upward movement with important oscillations. Overall, the message was intended to reassures investors that the European Central Bank has weapons to fight with the problems that the Eurozone is facing. A cut in interest rate is not taken into account for the near future but is considered for the final of the year. Also, negative interest rates may become an option in case of further difficulties. The inflation and the unemployment rate were also taken into account as problems that are constantly observed especially the unemployment rate which is a delicate problem that requires time in order to get to better results.