The FED got the most attention with its new way of communicating. Every member had to indicate for years ahead what the FED rate could be. This resulted in a solemn promise of Bernanke not to hike rates before the end of 2014. Suddenly an inflation target was presented of 2% for PCE (personal consumption expenditures weighted as in the GDP). So the US is now in a Japan trajectory with an ejection possibility when inflation should become too high. Bernanke also suggested a new round of QE was around the door.
All these wonderful things did the markets progress and the dollar regress.
In Europe the worries continued about Greece where Private Sector Involvement in the form of getting rid of c. € 100 billion of debts, while the worries also grew about Portugal. The ten year rates of Italy declined to an anaemic 6% and in Spain to below 5%.
In Germany the IFO was very good, the growth in the first quarter in Germany is very likely positive, but in France the INSEE was a mess. In Spain the unemployment rate rose to an disappointing 22.9% (reason for Fitch to lower its rating).
The growth of M3 in the Eurozone was only 1.6%, far below the norms of the old BUBA and the ECB ought to repair this with quantitative easing but the market doesn’t believe this, see the stronger euro last week.
In the US the orders for durable goods rose a strong 3% and together with a higher Richmont Fed Manufacturing index this points to a higher ISM this week. The new leading indicators rose 0.4% and the Chicago Activity Index (a repository of about 80 surveys about the US economy) was positive again, implying near or a bit above trend growth. The housing market indicators were weak.
The growth of the GDP in the fourth quarter was with 2.8% a bit below consensus (mainly because of defence spending subtracting 0.7% from growth) and 1.9% was caused by inventories what was dismayed by the markets.
A lot of central banks of Emerging Markets were in a mood to easse monetary policy. Thailand lowered the rates, India the reserve requirement ration. Brazil indicated to lower rates further. China disappointed (not at all surprisingly) by not lowering the reserve requirement ratio as a new year wish.
The profit season is a bit disappointing in the US (main reason the strong dollar), especially revenues are lower than expected and the guidance is not in the direction of prosperity. The numbers are not that bad (especially technology, industrials and materials surprised very positively, but energy, staples, telecom and utilities negatively). In Europe the profit numbers were also a bit disappointing, while you could have expected some help of the lower euro.
Several sentiment indicators are showing now a bit too much optimism.
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