In general the broad markets continue to add risk. The EUR is helping lead the party as the Single Currency has climbed to almost pre-crisis values. From the States we have witnessed gains on the major indexes and this has brought equities to high water marks also. Gold has lingered within a consolidated range and as of this afternoon is around 1667.00 USD, which may signal that traders have decided that Wall Street and other bourses are a safe place to be while speculating. While skeptics say the sound of investors running into the major indexes should be a warning sign, optimists are surely hoping they can get out of their trades when the going is good and are no doubt buying into the belief that stability has been achieved economically (for the time being and on the surface).
While the USD continues to flounder due to Fed policy, and commodities such as Crude Oil (WTI) show that traders are venturing forth with more aggressive attitudes towards risk, others are certainly warning that the U.S. and Europe are not out of the woods yet. From Washington D.C. politicians have agreed on the surface to a higher debt ceiling, thus averting another round of open debate about spending. However there is the thought that what the Republicans have done is simply allow President Obama to take on a greater amount of spending in order to be able to point a finger at the Democrats in a couple of years time and use this as political leverage – saying that the President forced a high spending policy upon Americans which was irresponsible. If President Obama and the Democrats see better growth numbers and an improvement in unemployment it will work against the Republicans no doubt. But if the Republicans are correct and the overall economy continues to mostly stagnate and they can quantify unemployment numbers that prove that the real rate of non working Americans is much higher than what is being reported because many without jobs have actually run out of benefit eligibility and are no longer counted in the overall statistics it could be a very interesting ride ahead.
Economic data has been mixed the past week. The CB Consumer Confidence reading from the States yesterday was below expectations with a result of 58.6. While Germany turned in some better results last week than expected with the likes of the ZEW, reminders such as Spain’s GDP numbers this morning should serve as a stark warning that there are grand designs in one palm and on the other hand cold hard realities. The Spanish GDP this morning reported a result of minus -0.7%, not the kind of figure that offers much hope of a turnaround, nor an ability to pay back massive debt that has been accumulated.
And it must be pointed out that while the EUR has gained that the GBP and AUD have essentially sat in place in forex. Economic numbers from the U.K. continue to be dispiriting, and Australia has seen commodity prices particularly among the metals languish the past month which have kept the AUD’s value in a consolidated mode. The U.K. did have better Net Lending to Individuals today, but its growth outlook remains cloudy. The JPY it must be noted continues to test the weakest parts of its long-term values.
ADP Employment Change numbers will come from the States today along with the Advance GDP results. Also the FOMC Statement is in the cards later today which could serve as starter fluid for a volatile market should a tweak in the Fed’s policy or outlook be interpreted. And Friday will finish up with the official jobless data from the States.
While risk taking is certainly finding an ability to translate itself into higher equity values in many global bourses, it must be asked how long this current party of good will can continue?