The statements and activities of the Fed and ECB resolve some of the monetary policy uncertainty that was overhanging the market. It will be the macro data or green shoots story that will again be the focus of the market as we move through the summer. This story becomes all the more important as the consensus suggests that we may be moving to an improving global economy as evidenced by the better growth report from the OECD.
From the Fed, we learned that monetary policy will continue to stay in easing mode but there will be no new buying of Treasuries. This was the major fear in the market, the monetizing of debt. Clearly, that was not the intent of the Treasury purchases but the perception was present given the size of the Treasury debt auctions. This fear is real but overblown given the size of the current output gap. The steady Fed policy is good for the market.
The ECB ran their 1-year fund auction which some have called stealth or endogenous QE. At a fixed rate, they are willing to lend an almost unlimited amount. This provides funds at a limited cost to the market and serves as a good way to get cash into the banking system. We now know the size and timing of this injection. Again uncertainty is resolved.
Now let's get set for unemployment before the 4th of July week-end.
From the Fed, we learned that monetary policy will continue to stay in easing mode but there will be no new buying of Treasuries. This was the major fear in the market, the monetizing of debt. Clearly, that was not the intent of the Treasury purchases but the perception was present given the size of the Treasury debt auctions. This fear is real but overblown given the size of the current output gap. The steady Fed policy is good for the market.
The ECB ran their 1-year fund auction which some have called stealth or endogenous QE. At a fixed rate, they are willing to lend an almost unlimited amount. This provides funds at a limited cost to the market and serves as a good way to get cash into the banking system. We now know the size and timing of this injection. Again uncertainty is resolved.
Now let's get set for unemployment before the 4th of July week-end.
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