Waiting For The FED…
We have a slow day today with no economic data in the U.S. Europe is trading on average up 1.5%, U.S. futures are up 0.3%, so it looks U.S. markets are not going to follow European lead.
Sell side macro economists are following Goldman’s (brilliant) Jan Hatzius lead and reducing GDP growth both for second half of 2010 and 2011.
Consensus in the meantime moved to forecast quantitative easing extension in a form of FED reinvesting matured MBS proceedings into U.S. government securities. Code name; QE 1.1 Lite. Some research even suggest that the program could be introduced during tomorrow’s FOMC meeting.
For me, it seems to early, as I think Mr. Bernanke will save ammunition (some would say the last bullet) for latter.
Maybe fireworks will come latter during the week with Chinese July data scheduled to be released on Tuesday and Wednesday together with FOMC meeting announcement on Tuesday and U.S. retail sales on Friday.
Markets…bond markets seem rational, equity markets not much… Macro…bunch of leading indicators and indexes suggest negative GDP growth in the U.S. as early as Q4 2010. What is priced in and how much the expansionary monetary policy is going to save the markets from the correction I really cannot tell, but the risks are, in my view, currently skewed to the downside.