The first half of March sees scheduled meetings of the Executive Board of both the ECB and the Fed, whose decisions could help to clarify some of the uncertainty that has adversely affected the international securities markets since the end of last year. There can be no doubt that investors have lost confidence in the interventions of debt monetization, read – QE, occurring three times in the last seven years, with mediocre results that are visible to everyone. It seems appropriate to note that the expectations were excessive, in the sense that monetary stimulus serves mainly to avoid the worsening of deflation, while necessary accompanying measures in the form of tax cuts and structural reforms to jump-start the economy, are conspicuously absent. To date what has been achieved is a calming of deflation, slightly below zero, but at the cost of a textbook liquidity trap. International exchanges with their constant progression since the autumn of 2011 until the summer of last year, had believed in the possible success of the monetary policies but the authoritative forecasts of a global economic weakening in 2016, led investors to scale back multiples achieved by the various indices, via a strong selling of securities evidenced by the sharp drop in prices. So, at least in part, the toy is broken in that a fourth edition of the QE in the second half of the year, does not seem able to bring back demand on the stock exchange, but only to stabilize the prices, provided there are no further surprises, possibly from the currency front. The analysis of the recent dynamics of the US dollar and the price of the ounce of gold, in view of the decisions that are going to be made by two of the world’s major central banks, could give a useful guidance perspective. In fact, after the change in the Fed’s course regarding the cost of money, the dollar is no longer able to regain the recent highs for the year against the euro, in contrast, gold has scored a price progression destined to continue, that can’t be explained fully nor with its inverse ratio to the external dollar parity nor even with its value as a safe haven.
The reason is to be found instead in the forthcoming resumption of QE, in the sense that gold should be understood as a real good alternative to paper currencies, struggling with an undeclared currency war, aimed at obtaining a competitive advantage via foreign exchange, masking interventions as a monetary policy decisions to combat deflation. Over the past three years through these interventions, the yen, the euro and the yuan recently, have all devalued primarily against the dollar, that also in response to the abrupt Gold revaluation, could also be, near a trend reversal. In fact, the yellow metal usually anticipates the trend of other commodities, whose prices are all inversely correlated with the US currency, not to mention that only the near downsizing of the latter, would clear the field of a very worrying working hypothesis, constituted by the decision of the Chinese central bank to devalue the currency suddenly of 10 – 15%, and finally put an end to hemorrhage of foreign exchange reserves. So, in this context, the ECB can only give a small token to the markets, perhaps through the expansion of the category of discountable securities but it has to keep maneuvering room both for moderation of the securities markets in the near future and also to face a possible weakening of the dollar. For its part, the Fed probably will not change rates, but will say that it remains ready to do so in the short term and it will be a careful reading of this statement which could give indications on the will of the authorities to revise the short-term strategy of a strong dollar. For international exchanges recently experiencing a technical rebound, the outlook remains very uncertain, given that fundamentals are not expected to improve in the short term, while the technical picture indicates important support levels are at 10 – 15 % from current levels.
Nicola Bravetti Fonte dati: Bloomberg