Will the Federal Reserve be cagey about QE3?
*Financial Times, by Jamie Chisholm, April 4, 2012
”Stocks and commodities are in retreat after the US Federal Reserve curbed expectations of more monetary stimulus, providing an excuse for bullish positions to be pared after a good run for risk assets.
Selling is also being encouraged by a disappointing auction of Spanish government debt, which has revived tensions in the eurozone sovereign bond complex.”
”Growth-focused assets are generally having a hard time across many sectors. Copper is losing 1.5 per cent to $3.86 a pound, and the Australian dollar, usually highly correlated to perceptions of global resource demand, is down 0.6 per cent to an 11-week low of $1.0262, though part of the Aussie’s weakness is the result of Sydney announcing an unexpected trade deficit for February.
Havens are seeing inflows, with the US dollar index gaining 0.3 per cent and US 10-year bond yields slipping 4 basis points to 2.25 per cent after rising sharply in the previous session.
The latest bout of selling has been triggered partly by some traders inferring from the Fed minutes released on Tuesday that another round of quantitative easing, or asset purchases, is less likely. Many investors perceive a significant correlation between rounds of central bank largesse and gains for most risk assets. This is particularly true of gold, which is down 0.8 per cent to $1,631 an ounce, a near three-month low.
But the corollary of the Fed’s supposed reticence is that the economy may be in less need of support. This then puts more emphasis on economic data not to disappoint. The big news in this regard will come on Friday, when the US non-farm payrolls numbers are released. On Wednesday traders will receive a report on private sector employment from ADP, the payroll processor, and Thursday’s weekly jobless figures.
To some analysts, the pullback for risk assets represents a period of consolidation given their rise — the FTSE All-World equity index has gained 11 per cent in 2012.”
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