Fed’s Bullard ends the bulls party

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Bullard, Fed St Louis Governer

The release of the FED Minutes from the latest open market committee meeting on Wednesday gave a boost to equities across the pond but the optimism didn’t last for long as the Saint Louis Federal Reserve President, James Bullard, seemed to play down the odds of further FED stimulus in an interview on CNBC yesterday.

Bullard stated that the odds for further intervention are not as high as investors think and, if the FED were to engage in another quantitative easing package, it likely to be in September either. Bullard thinks the latest economic data has been better than it was before the FED’s meeting on Jul 31 – Aug 1 and that current conditions may not be worrisome enough to lead the FED to act. The language used by the FED was defensive and they appeared to keep all options opened regarding what kind of policy to use, and when.

Comments from FED’s Bullard seemed to surprise the market and, for now, have put paid to the recent uptrend just as the Dow and the S&P were approaching year highs. The Dow currently trades around 13,050 and looks to make a test of the  13,000 level over the next few sessions.

While EU officials have been appearing contradictory with their missives regarding Greece, it seems that the US FED now is looking to keep investors “on their toes” with a “will they, wont they” approach to the possibility of launching QE3. Ben Bernanke has been rather intriguingly, continuing to dangle the carrot of QE3 in front of investors, playing the markets game of “it’s better to travel than arrive” perfectly but, as the US election approaches, the likelihood of it happening soon seem limited

While investors try to interpret Bullard’s words, there are also other concerns to digest. Even though equities are down today, Gold is still resilient. It seems that investors do expect QE3 to come at some point and that the inflation bogeyman will finally be out of the bag. Alternately, they are looking at the ECB to finally “go nuclear” and monetise ECB backed bonds. Indeed, the latest PMI data in Europe has been pointing to continued and so the ”excuse’ is there to hit the printing presses.

In China also the HSBC PMI index came in at 47.8, down from 49.3. Investors are becoming morey worried about the slowdown in China and it seems they will have a harder landing than they first thought.

This week will end with meetings between Angela Merkel, Hollande and the Greek PM Samaras. It seems that Samaras will try to convince them that Greece needs more time to apply a multi-billion austerity package to avoid further unemployment or to contract economically even more. For those carrying positions during the weekend, be careful with the impact these meetings may have, especially in the EUR/USD market.

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