S is for stagnation and U.S. data indicates that is what is being experienced economically. The GDP via the Prelim report disappointed for the second straight month earlier today with an outcome of only plus 0.1%, far below the expectation of 0.5%. The Preliminary report that was released today leaves little room for politicians to blame weather related events for the lackluster numbers this time around. Yesterday the U.K. released their GDP report and it produced a minus -0.3%. The number matched the estimate, but no parades will be held as Britain finds itself mired in a recession.
Simply put Europe and the United States are finding difficult headwinds economically and that is not good news. Yes some of Asia has done better, Hong Kong yesterday produced some good economic data, but Japan which is among the biggest economic forces continues to be mired within stagnation too. And it appears Australia is headed towards tougher days. Perhaps holding some of the world’s cauldron together has been the success of China, but there have been some cracks within its armour also. China has a real estate bubble that it is trying to manage, but practices among ‘black market’ lenders there are a concern and if the real estate bubble were to burst hard instead of soft its domestic sphere would be injured greatly. This besides the pointed analysis of some who say that the Chinese economic numbers cannot be fully trusted.
Wall Street and other bourses are moving in a cautious manner. Investors have not shown any desire to abandon the one seemingly magic carpet ride to profits. However, signs are indicative of a fragile psychology within the equity markets. In the meantime from Europe, the Sovereign Debt yields looks to be on a razor’s edge in Italy and Spain as traders are confronted by ‘untidy what if’ scenarios. Politics from both Europe and the States appear ready for more bruising fights in the days to come taking into consideration what is taking place in Italy post-election, and the within the U.S. regarding the budget debacle.
Again, Digital Markets Advisor is not hear to scare people, we are here to offer our opinions. Interestingly enough after Fed Chairman Ben Bernanke wrapped up his testimony in Washington D.C. it was noted by several pundits that he seemed to deliver his testimony in a more somber fashion than normal. Some would suggest that is because Mr. Bernanke has seen the results of his massive quantitative easing policy and he may be beginning to come to the conclusion that the program has not had the effects that had been hoped for. While stability has been achieved for the time being, growth has not been nearly large enough, and the employment picture in the States remains cryptic. While stability may be good for the time being, there are many who are worried about the long-term problems that could develop because of current monetary policy particularly if inflation were to suddenly emerge and the economy is still stagnating. Could the U.S. fall into the same economic abyss that has plagued Japan the past twenty plus years?
The stock markets have done relatively well today across the globe, the major currencies have also for the most part moved in a consolidated mode. S is for stability, it may also be for short-term. The EUR has remained in a short-term range, the GBP has also moved little, the JPY has lost some ground today but remains in a known sphere. Gold has traded lower after gaining earlier this week. As of this writing the precious metal is near 1575.00 USD. It will be interesting to see if Gold tests its lows again before going into the weekend. Crude Oil has continued to see some headwinds as economic data globally has perhaps put a damper on speculation.
There will be plenty of data tomorrow. German Retail Sales will be published, the U.K. will see its Manufacturing PMI report, and the U.S. will present Personal Spending figures and have the ISM Manufacturing PMI reading.
The last day of February has proven to be a tough one from the economic data perspective and market psychology going into March leaves plenty of room for opinions and conjecture.