Some (or, in the case of oil, all) of the Fed-induced euphoria that became manifest one week ago dissipated during the course of this week as certain market participants were left with an environment wherein Fedspectations can now be considered as being off the table and wherein certain assets will have to make “a go of it” based on palpable demand and solid fundamentals. Then again, what are said market participants to really believe, when, just four days after the Fed handed out QE3 (of sorts) its own top policymakers publicly (and sharply) disagreed on its effectiveness?
Gold prices bumped up against long-term (one year in the making) downward resistance levels near $1,780 but remained supported above the $1,730-$1,750 value zone as players attempted to gauge the duration and scale of the U.S. central bank’s bond-buying program. A number of decent economic metrics released during the week managed to dial overoptimistic QE expectations back just a tad.
Standard Bank (SA) analysts summed it up as follows: “There’s not been much follow-through from the Fed’s QE of last week, which is consistent with the idea that the market sees significantly declining marginal returns from every new easing policy from the Fed. In fact the lesson increasingly seems to be that investors should buy what the Fed buys (or any other central bank for that matter) but not necessarily expect a much wider impact.”
On the other hand, continuing worrisome news from various parts of the globe also placed into question the efficacy of the recent spate of QE programs; these may have been a classic case of “not too little, but too late.” We noted this week that China’s flash HSBC PMI survey remained solidly under 50 (last reading at 47.8) and that it has stayed there for the past year now.
China’s output metrics are running at a ten or eleven-month low. BHP Billiton (only the world’s top miner) cautioned that China’s demand for iron ore has been more than halved. When the planet’s largest importer of iron ore experiences such a slump in demand, it is not surprising to read that BHP’s top commercial officer sees “the beginning of the end of the first phase of economic development in China.”
This morning’s catalyst for the bulls may have been the reports out of Europe that Spain is getting ready to announce a plan to reform its economy and that it is indeed working with EU officials on how to prepare for a new rescue plan and for unlimited bond-buying by the ECB. While the euro has clearly benefited from the ECB’s announcement that it may purchase sovereign debt, Credit Suisse analysts are not of the opinion that its gains are here to stay; not for very long, anyway.