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Home » Online Forex Trading Blog » Bernanke and China Cannot Lift Markets

Bernanke and China Cannot Lift Markets


On Wednesday, Ben Bernanke spoke to Congress as a report revealing strong export data from China was leaked.  A formal announcement about China’s economy will be released on Thursday.  Global equity markets liked what they heard.  Based on the two events, global markets jumped one percent in three hours.

However, by the end of the day, reality took over and the Dow Jones, which had gained nearly 130 points, closed the day down 40 points.  The S&P settled at 1055, down roughly 2 percent from mid morning highs.  Lately, dramatic late day sell offs are a way of life for investors.  The trend illustrates the overall lack of confidence in markets and the tenuous nature of media based rallies.

The inconsistent news from the euro zone and the devastating consequences of the BP oil spill in the Gulf Coast are just two of the factors keeping investors on edge. 

Behind the scenes, Wall Street reform legislation takes center stage today and European Central Bank President Jean-Claude Trichet is due to address the media.  The beleaguered President will be asked about the ECB’s new policy of purchasing government bonds

Overnight, the ECB announced that interest rates would remain at 1 percent.  The UK announced that interest rates would hold at ½ percent.  France has now joined Germany in calling for a ban on naked short selling as Spain replaces Greece as the country to watch.  Most experts believe restructuring of Greece is a foregone conclusion.

In a change of policy, the ECB had acquired 40.5 billion euros worth of bonds as of last Friday.  The media will certainly press for more information and ask how long the ECB will continue this policy designed to solidify the zone’s financial institutions and stabilize the euro.

Bernanke Sells the Recovery

Bernanke sounded more like a U.S. recovery salesperson than the Chairman of the Federal Reserve.  In his testimony before the House of Representatives Budget Committee, Bernanke stepped out of character to touch on a variety of pressing issues.  A quick summary of the Chairman’s points: 

  • The U.S. economic recovery was steady.
  • The possibility of a double dip recession was less likely than the possibility of a V shaped recovery.
  • Discounted the demand for gold as a flight to safety.
  • The euro was showing signs of stability.
  • The economy was requiring less government support than in the past.
  • The Wall Street reform was absolutely necessary.
  • Borrowing costs would remain near zero for a lengthy time period.
  • He identified the struggling housing market and commercial property market as two factors holding back a sharper recovery.
  • Unemployment would remain high until the real estate markets recovered.

 Some of Bernanke’s more interesting quotes were:

“If (euro zone) markets continue to stabilize, then the effects of the crises on economic growth in the United States seem likely to be modest.”

“We should be planning now on how to meet these looming budgetary challenges.”

“Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the demand in economic recovery.” 

“A significant amount of time will be required to restore the nearly 8.5 million jobs that were lost over 2008 and 2009. In this environment, inflation is likely to remain subdued.”

Bernanke was firm that this is not the time to address the budget deficits because the economy was not out of the woods.  The Chairman made it clear that it was time for U.S. banks to take a hard line on pay packages.

China’s May export trade increased by 50 percent in year-over-year comparisons.  Predictions had been a 32 percent increase.  The export data signaled the continued growth of the world’s safest economy.  Combining China’s economic progress and the weaker dollar, oil prices turned upwards.

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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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