Almost on cue yesterday many media outlets posted the U.K. GDP results as if the nation had won a gold medal in economics. A result showing a gain of 0.3% was displayed for all to look at the majesty of the recovery. Say what? That is correct, the U.K. failed to officially be in recessionary mode per their GDP report. Lets start the parade, just don’t tell the participants that it likely doesn’t have a good destination please.
On the other side of the coin, the Spanish government is essentially unable to hide an unemployment problem that continues to grow worse. An official rate of 27.2% was the published figure for joblessness on Thursday for Spain. The fourth biggest economy in Europe is suffering nothing short of a depression. And in Italy it must be noted that Enrico Letta who has been given the task of trying to form a government has started to be quoted as saying that the E.U. must change its dictates regarding Italian austerity. This as Europe’s 3rd biggest economy wanders perilously near the brink. Digital Markets Advisor mentions Spain and Italy with their numerical economic standings within the E.U. because as some analysts refer to the core of Europe showing signs of life, meaning Germany – which has not plunged head first into an abyss economically (yet), that in essence Spain and Italy which had been considered part of the core until it was no longer convenient are simply refered to as southern European nations now.
The EUR has traded stronger the past day and a half and is near short-term highs. Before going into the weekend traders will be offered an opportunity to foray into a confidence game that is being run by the E.U. and ECB (with the Fed providing ammunition via quantitative easing), with all participants knowing full well that a very important ECB monetary policy meeting will be held next week. And traders should be aware that the game that is being played right now is becoming more dangerous and that the Single Currency will likely see a test of its value. Particularly because many believe an interest rate should be enacted via the ECB.
Today the U.S. will release its own ‘glorious’ version of Advance GDP results and the expected outcome is a gain of 3.1%. While the number is of interest, it must be wondered just how much the number can be trusted with all the evidence of new accounting methods and government spending muddling their way into the mix. While Wall Street and other global bourses have continued to traverse high ground some investors may be looking for a ladder in which to safely descend.
Gold is near 1472.00 USD having gained with volatile gusto in early trading this morning. If the commodities are to be used as a barometer for the psychology of the market it should be said that skittishness pervades the sphere. Crude Oil has climbed also and WTI is near short-term highs with the sudden jump in value.
Politicians and their appointed officials will certainly deny it, but there is a growing body of evidence that the equity markets are being fueled not only by the near zero interest rate policies of central banks, but by the increased amount of purchases of direct equity – yes, corporate shares – that they are purchasing too. If sovereign wealth funds have the power to move the markets just imagine what type of money is coming into the equities if central banks are becoming customers too. Simply put traders (and all citizens) are witnessing one of the most risky and profound attempts by a consortium of modern governments to try to insure their unique vision of stability for the global economy. However, governments and their respective central banks for the most part deny that they have created a bubble in equities. If pressed via tough questions central bankers such as Ben Bernanke might continue to say that these are ‘extraordinary times’ and deserve unique actions, but as for the long-term implications most officials can only shrug their shoulders and offer – c’est la vie.