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Home » Online Forex Trading Blog » Another Day of Betting on the ECB

Another Day of Betting on the ECB

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Another Day of Betting on the ECB & QE3

After a downturn at the open, US equity markets turned positive on news from the euro zone and the European Central Bank (ECB). The DJI closed up 100.51 points while the Nasdaq Composite Index ended the week at 3,089.79 and the S&P 500 climbed up enough to close at 1,411.72. On the whole, US equities are still bullish.

Despite news from the Fed that stimulus was unlikely at this time, an encouraging development in the debt ridden euro zone outweighed the Fed’s Thursday report. Investors have been leaning heavily on the Federal Reserve and appear to be anticipating the controversial QE3 stimulus. The market opened on the downside in anticipation of a selloff due to Bernanke’s announcement.

Fed Chairman Bernanke does not mince words.  After his report on Thursday, equities all turned lower. After meeting with Greece’s President, Antonis Samaras, on Friday and talking with France’s Francois Holland on Thursday, Chancellor Angela Merkel announced that Germany and France were in agreement that they wanted Greece to remain in the euro zone. Merkel stipulated that she would abide by decisions made by the troika of international investors. Once again, the Chancellor stressed that Greece must meet its commitments before any infusion of any further financial aid could be made. Merkel falls short as credible. Without easing her position, it is difficult to see how the euro zone can escape a catastrophe.

Recently rated the most powerful woman on the planet, Merkel’s political future is in doubt. In any case, global markets did not react to the chancellor’s statement.

However, later in the day, ECB President Mario Draghi announced the central bank was contemplating setting targets in another bond-buying spree that would be deigned to control euro zone borrowing costs. The focus of this initiative will be to stabilize Spain’s volatile and unsustainable borrowing rates.

In looking back over the week, perhaps the most unnerving occurrence is Finland’s development of a course of action to withdraw from the euro zone. This would be a voluntary withdrawal and more importantly a signal that other members, including Germany, may be contemplating ending their participation in a broken model.

Draghi has been high profile in stating his case for more ECB easing. It is not certain how his initiatives will be received by his member nations. The ECB President will speak at the G20 in Jackson Hole next Saturday.

Investors still hold out hope that the Federal Reserve will come through before the end of the year, but there does not appear enough negative data to justify what could be a final push to decrease unemployment. New factory equipment purchased was down in July but production was up. The unemployment rate edged up to 8.3 percent. There is no doubt that uncertainty about the euro zone is undermining the US economy.

The US Congress, with its newest approval rating of ten percent, has been called upon by Congressional Budget Office to not repeat the horrific battle about extending the deficit come December. There is little reason to believe that this Congress will put their jobs on the line prior to Election Day.

No matter how you view the politics of the time, Congress, not the President, drives or stops the engine known as the US economy. Two years ago, Republicans used the deficit to force the President’s hand and extend the Bush Tax Cuts, which will revert to pre-Bush tax rates on January 1, 2013 unless a compromise is reached.

The Congressional Budget Office (CBO) warned Congress that if arrangements were not made to avert the $500 billion in tax hikes and pre-arranged budget cuts, the US economy will plummet into another recession in the first half of next year. The CBO further warned that unemployment would rise to 9.1 percent during the first quarter of 2013. It is crunch time for the US economy and nobody is home minding the store. Whoever the President is will be of little consequence unless the House and Senate have similar majorities to the President’s.

 

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About the Author -

Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses. Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.

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