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By Gaurav Kashyap, Head of DGCX desk at Alpari ME DMCC
Following two months of under par jobs growth, all eyes were on Fed Chairman Ben Bernanke as he delivered his testimony on Capitol Hill on Thursday. Following the most recent US Non-farm payrolls report, in which a meagre 69K jobs were added with unemployment trending higher to 8.2%, many felt the Congressional testimony would be the forum for Bernanke to announce QE3 measures - particularly after his rather dovish deputy, Janet Yellen gave strong indications a few days earlier that the Fed would be forced to act.
Instead, Bernanke failed to deliver any measures and passed the torch to Congress to do more to tackle the fiscal deficit. The stronger jobs growth experienced at the beginning of the year was as a result of catch-up hiring and the weakening of hiring patterns during the previous two months was underpinned by seasonal adjustments. He maintained that economic growth in the US is expected to continue "at a moderate pace" and that the Fed was ready and prepared to do more if market conditions deteriorate further. Following the testimony, US stock markets pared most of their gains on the day with the US Dollar rallying on the lack of QE measures.
Gold, an asset which benefits with the introduction of easing measures, sold off rather aggressively and fell below 1600 for the first time in the week. Bernanke's lack of action will no doubt hinder the recent rallies experienced in the early parts of the week and any gains against the US Dollar will be very much in check. The FOMC are set to meet on June 19 & 20, and judging by how unconvinced Bernanke is thus far, it won't be the actions of the Fed which will drive the US Dollar weaker but perhaps the return of risk appetite to the markets after Greece heads to the polls a week from today.
European Central Bank holds rates at 1%
Across the pond, the European Central Bank held rates unchanged at 1.00% and Draghi, like his American counterpart failed to announce additional liquidity measures for the Euro-zone. In his statement, Draghi maintained that "Monetary expansion remains subdued while inflation expectations remain firmly anchored." While he admitted economic growth remains weak and the overall outlook subject to downside risks due to the heightened uncertainty, he did point out that inflation is expected to trend higher above 2% in 2012.
Draghi's rather hawkish views on price pressures hinted that the ECB chief will not act at the moment despite a slew of weakening data released earlier in the week. Euro-zone GDP was unchanged QoQ came in at 0.0% while the YoY figure showed a contraction to -0.1% while more alarmingly, German factory orders month on month contracted by -1.9% v 3.2% previously. Judging by the actions of the Fed and the ECB this week, neither appear too keen on introducing more liquidity measures, and this will keep gains in their respective equity markets in check. Amidst the release of the EU industrial readings and inflation data, all eyes will be trained on next Sunday's Greek election outcome.
People's Bank of China, Reserve Bank of Australia cut rates to support growth
With the ECB and Fed refraining from extending the market any clues, the People's Bank of China and the Reserve Bank of Australia both cut their rates in a bid to support future growth. The PBOC's announcement surprised markets on Thursday when they announced that they would be cutting their one-year lending and deposit rates by 0.25%.
Staff
