Home / Finance News

Euro Area Strengthens, Merkel Remains a Major Player

By Silvia Gabor

The most awaited news for the Euro zone was the result of the German elections. As everybody was expecting, Angela Merkel’s Conservative Party won with 41.4% of the vote while her Liberal partner failed to make it into the Parliament. The result of the election pleased central banks as urgent matters concerning their activity need the involvement of the chancellor who now is finally established.

Today were released the PMIs for the services and manufacturing sectors for French, Germany and the Euro zone. Read one of my previous article, you can understand better what a PMI means. Thus, the PMIs in the services sector beat all expectations, reflecting a propulsion of 1.8 points for French, 1.6 points for Germany and 1.4 points for the Euro zone. Is encouraging to see that the French services sector overcame the 50 points threshold, showing that the field is expanding for the first time since January 2012.

Today Mario Draghi gave another speech. He maintained his positive thinking about the slow recovery of the Euro zone, while keeping the low interest rates for an extended period of time. A refinancing operation may be needed for the European banking system and Draghi is ready to use any tool required in order to improve the results of the economy. The next concerning matter is again Greece which is currently asking for another tranche of funding worth 1 billion euro. Regarding the latest decision on the United State’s territory, the chairman of the European Central Bank expressed his approval for the decision to continue with the Quantitative Easing program as long as needed.

For the moment the Euro zone is going through a period of silence as Angela Merkel remained the Chancellor of Germany and will continue to approach the European crisis as before. On the other side, the European economy keeps giving positive signals, even if they are less significant, they are considered steps towards a sustainable growth.

Filed Under: Finance News

Gold is Reacting to News About QE3

By Silvia Gabor

As Wednesday Fed decided to maintain the Quantitative Easing Program in place, we could see the American dollar dropping but indices as DAX, Standard & Poor’s 500, Nasdaq and Dow Jones Industrial Average reaching historical highs. This decision was felt and integrated in the price of gold. Since Ben Bernanke announced a possible change of the stimulus program, we saw the price of gold increasing at a steady pace.

Since the beginning of 2013, gold lost nearly 20% anticipating a reduction in the stimulus program but starting with June, when the possible tapper was announced, gold start climbing, like it encapsulate the uncertainty and lack of trust of the investors, and clearly indicating the continuity of the QE3. Also, Lawrence Summers’s withdrew as a candidate to head the Federal Reserve made the gold climbing as a proof that Janet Yellen has now more chances to assume Ben Bernanke’s responsabilities and to continue the unconventional monetary policy.

If Fed will cut the stimulus, gold is expected to get on an increasing trend, reaching $1400 per ounce while if the stimulus is maintained, gold will oscillate at lower values, most probably respecting the boundaries of a range. Even if by the end of the year the FOMC will meet again, there are poor chances to see the QE3 tapered. Most probably, the decision will be taken by the new chairman of Fed which will integrate the decision in a new strategy to run the American economy.

As St. Louis Fed’s Bullard delivered a speech later today, he expressed his view regarding the stimulus program which is effective and benefic for the economy. He doesn’t see any problem in having Yellen as head of Fed. Also, the fact that the QE3 wasn’t tapered at the last meeting isn’t a surprise for him who doesn’t expect this decision to be taken by the end of this year. Even if they would have decided to taper, $10 billion would have made a difference, in his opinion.

Filed Under: Finance News Tagged With: , , , ,

The Prime Event of the Weekend: Elections in Germany

By Silvia Gabor

Sunday, 22nd of September, will be held the elections for the position of Federal Chancellor of the Federal Republic of Germany, known as the head of government, the third most important person in the state which also has the most responsibility of all the first mentioned.  Since 2005, this position was managed by Angela Merkel who now is ending her second mandate. The current Chancellor of Germany is leading the CDU/CSU (Christian Democratic Union/ Christian Social Union) grouping knows as the Union.

The main opponent of Angela Merkel is Peer Steinbrück, the Social Democratic challenger. Even if he is known as an expert in finance with potential for this position, statistics say that Angela Merkel is the favourite. Peer Steinbrück’s proposals were to raise taxes for rich people and ensure that women are fairly treated in the labour market, targeting an improvement in the percentage of women working. With respect to his potential party ally, he is rather choosing the Greens than the party of Angela Merkel.

Concerning the main challenges that the two candidates were confronted with, we heard questions about how additional funds for Greece will be obtain and which are the next steps needed in order to make progress in the banking union process, as it is one of the top priorities of the leaders of the European Union.  Also, there were raised questions about situations as the worrying unemployment rate in the Euro zone, the fragile situation of the economy of Spain, the way that Portugal will face the terms imposed by the bailout and the situation of Slovenia which is struggling not to become a country which need additional aid. Why are we mentioning these facts? Because Germany is known as the engine of the Euro zone and it has the decision-making power concerning the matters related to the European continent.

Expectations are indicating that Angela Merkel will begin a third mandate and will continue to lead the country for the next 4 years as it did so far. Considering that Germany maintained its position as the second largest exporter in the world and the biggest economy in Europe, Angela Merkel is considered to be the most appropriate person to lead Germany in the following years. The future promises to be tough, as the Euro zone needs to completely overcome the financial crisis and strength its economy.

Filed Under: Finance News Tagged With: , , ,

The Quantitative Easing Program Remains in Force

By Silvia Gabor

The FOMC decided to wait and hold  the QE3 in place at a pace of $85 billion per month. Apparently, the economy of the United States is not ready to quit the stimulus, decided the FOMC members by a 1-to-9 vote. Indeed, the data below expectations coming from the labour market influenced the decision took today and Ben Bernanke gave assurances that the progress of the economy  is basically deciding whether or not the QE3 will continue to run or not.

Likewise, the interest rate is going to remain at low levels with no changes on the long-term. The “no tapering” indicated an economy still fragile, then add the fact that the Fed is revising down its economic growth forecasts, seeing  growth between 2% and 2.3% this year, down from 2.3% to 2.6%. Even if the program is being maintained, it doesn’t mean that it failed to deliver results, just that a better recovery of the economy is needed.  As an example, since September 2012 when the QE3 started, the jobless rate fall from 8.3% to 7.3%, a substantial improvement but still above the targeted percentage. As there are no worries about inflation which this year is expected to vary between 1.2% and 1.3%, the Quantitative Easing program will continue to support the American economy as long as needed.

Filed Under: Finance News Tagged With: , , ,

Tomorrow FOMC Will Decide QE3′s Fate

By Silvia Gabor

Tomorrow is the much awaited day, when chairman Ben Bernanke will expose his decision concerning the evolution of the third Quantitative Easing program that has been implemented for one year, so far. Everybody’s eyes will be on Fed’s chairman and for sure the markets will be highly sensitive to each word delivered.

The big question is: will the QE3 be reduced now? Or later this year?

Most of the investors, and also most of the surveys conducted by Reuters and Bloomberg are pointing towards a contraction of $10 billion that will be announced tomorrow, but the amount may vary between $5 and $25 billion. Tomorrow are expected forecasts about the American economy for 2016 and it will be interested to follow the way they will treat the fact that in January 2014 Ben Bernanke will no longer lead the Federal Banks of the United States. Janet Yellen is the favorite so far, but we have to be careful to any possible surprises.

Even if economists believe that Yellen’s approach will be almost the same as the one of Bernanke and another chairman will make radical changes, we cannot expect this scenario to happen. Giving the size and importance of the QE, no matter the chairman, decisions will be taken in the best interest of the American economy. Thus, tapering will happen gradually and further changes will be made according to data coming from the labor and housing sectors, in particular. Anyhow, the difficult part of the process of strengthening the economy just now is coming, and the next chairman will have to be able to control the situation in a proper way.

Both gold an silver’s futures dropped in anticipation of the decision that is coming tomorrow, investors preferring to wait. As it concerns the price of gold, it is expected to further decline until the end of this year. Same for the emerging markets, which are already feeling the effects of the “absence of QE” due to the considerable decrease of inflows of money.

Filed Under: Finance News Tagged With: , ,

Major News on the Most Important Markets

By Silvia Gabor

Now that  Lawrence Summers is out of the race for the presidency of Fed, once again the assumptions that Janet Yellen will take over the leadership of Federal Reserve Bank are becoming more realistic. What does that mean? I means that the Bernanke’s style will be kept and the Quantitative Easing Program will know a smooth tapering or even a continuation, under certain circumstances. Investors don’t expect major changes in the way the tapering will evolve (a reduction consisting in $10 billion), keeping an eye on the FOMC press conferences, as the one that will follow on Wednesday.

On the other side of the ocean, things seem to settle. Germany is preparing next Sunday for elections and the whole Euro zone is expecting Chancellor Angela Merkel to win a third term and continue to run Germany’s economy as before (also will continue to say the word regarding European monetary policy, a view which has great importance). Out today, Mario Draghi spoke about the European’s economy which seems to have passed the unstable period and now is trying to consolidate and to follow a path that will lead to economic growth. As the unemployment rate in Europe stays at a concerning level and the fragility still characterizes the zone, the interest rate is expected to remain at low levels, with an optimistic touch given by the 0.3% GDP growth in the second quarter, after six straight quarters of negative growth. Mario Draghi emphasized the need to strenght the institutional architecture of EMU by building a stronger Europe thru the banking union and a single European supervisor which will make sure that capital is correctly flowing through the Union’s countries. The feeling that Europe is still looking for its balance was submitted, leaving the investors waiting for positive signals.

Filed Under: Finance News