Economic Policies In Question

The broad marketplace proved that it is part of a confidence game that is living on a razor’s edge. The USD continued to gain versus the EUR and GBP on Tuesday as it was hinted that the quantitative easing from the Fed has been digested by investors, and now worries about debt ratios among some nations in Europe has become a concern again. Wall Street turned in a second day of rather poor returns and the global bourses essentially followed suit. Strains are suddenly reemerging among some banking institutions, which still have unanswered questions regarding their business core – particularly focused on how they will make money when mortgages remain weak and lending is troublesome.

There was little in the way of data from the U.S. yesterday, underscoring that the market moves came about because of preconceived notions and not a sudden wave of new information. Today the weekly Unemployment Claims will be released and they are expected to be slightly better than last week’s result. The report is coming out a day early because of the holiday in the States tomorrow.

Data on the other side of the Atlantic Tuesday was not inspiring. The U.K. released a few disappointing results as Manufacturing Production, Trade Balance, and Industrial Production numbers were all below estimates. Today the U.K. will present its Inflation Report via the Bank of England and this will be watched carefully by investors who remain skeptical about the rather difficult path that is ahead taking into consideration that core prices have escalated more than expected – including food prices, while economic growth remains less than brilliant. Some investors believe that the BoE may be laying the groundwork for more quantitative easing. Europe will publish CPI data today from France and WPI numbers from Germany. On Friday the Preliminary GDP statistics will come from Germany and this could prove worthwhile to monitor.

Bond yields from the so-called peripheral nations of Europe including Greece, Portugal, Spain, and Ireland remain problematic and show that investors continue to be bothered by balance sheets. The EUR has stumbled the past few days and while it has taken place only in the short term it must be looked at carefully considering that many of Europe’s economic problems have not gone away. Market psychology remains fragile.

The EUR versus the USD remains a critical looking glass. Many investors still are unconvinced that the Federal Reserve’s quantitative easing policy will produce good long term results and many of these same investors are unimpressed by Europe’s ability to create fundamental change via austerity measures and its ability to create growth and realize improved budgets all at the same time.

The JPY lost ground to the USD on Tuesday and finds itself near an important juncture. The JPY will have to be watched closely to see if it will actually continue to lose ground or if it will become clear this was merely another range movement that will find the Japanese currency within its strongest realms. The AUD traded in range yesterday and this is interesting considering that Gold faltered slightly as the precious metal went below 1400.00 USD an ounce.

Thus, investors will have to gauge the entire marketplace today with suspicion as they judge if this is a short term move by the USD or if a profound reversal of sentiment is underway. The global economy remains on a slippery slope and its path does not have clear sailing. The G20 meetings that are underway have been reported to have been rather aggressive and nations are expressing their displeasure with policies that they are not in agreement with.

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