With economic storm clouds gathering abroad and signs the U.S. recovery is flagging, the Federal Reserve may feel compelled on Wednesday to launch a new round of monetary stimulus.
Once again, we find ourselves here. Here is the market reacting to the announcement from the Fed. This type of “wait and see” game makes life difficult for traders and investors, as it brings the whole game down to a coin toss. No matter, though, now that the words are out the market will do its thing today, whatever that ends up being, and then the market will settle back into its routine of late – rally or run.
Sweden’s economy is losing momentum and is unlikely to improve until next year, according to a leading think tank, which called on the government to stimulate growth and urged the central bank to cut interest rates.
Pressure is mounting for economic stimulus in the European theater. Yes, I think the metaphor is appropriate, as the forces of austerity are gearing up to resist the invasion of the stimulators. The battle is coming, and the first salvo will be Greece and its negotiating team. A group of Greeks (no, not hiding in a large wooden horse) will sit down with the so-called Troika (EU Commission, the IMF, and the ECB) to renegotiate the current terms of its bailout. The issue at hand is that Germany’s fiscal conservative voice, Finance Minister Wolfgang Schaeuble, has stated flatly that a deal is a deal, and since Germany is the “paymaster,” his words carry weight.
Turning to Greece, Mr. Schaeuble said the tough austerity measures demanded by Greece’s European partner countries weren’t overwhelming the indebted nation.
Obviously, he is incorrect and the mounting pressure from within Europe and from the US and China speaks to that. Greece does need some mitigation from the harsh austerity measures, and it does need some stimulus to get its economy going again. In fact, all of Europe needs some stimulation, as it is beginning to drag the global economy down with its lackluster and somewhat draining economic deceleration. The market would react kindly to any news of rate cuts or outright injection of economic stimulation.
French President Francois Hollande will sound out his German, Italian, and Spanish peers on Friday about the chances of making his finance minister, Pierre Moscovici, head of the Eurogroup rather than Germany’s Wolfgang Schaeuble.
The battle lines are drawn. Once again, France and Germany are going to fight, except this time there will be no Maginot line, no tanks, and no bloody battlefields. This time, the fight will take place on the political field and in the arena of public opinion. This time, as it has been in the past two major conflicts, the future of Europe is at stake. Now, as any high school student should be able to tell you, each time these two European titans have clashed in the last century, each has won once. My guess is this rubber match will go to France, as Germany, without its highly efficient military and destructive armaments, is no match for an economic power wielding the force of global public opinion. As well, me thinks Germany’s enlightened self-interest will play out as well – it needs the euro currency zone to remain intact and healthy or it will succumb to the power of economic deceleration, and once again, it will be the villain of Europe.
Trade in the day; Invest in your life
