All eyes on Europe as Fed waits

The Federal Reserve acknowledged that the economy is slowing, but it didn't act, leaving everyone focused on the European Central Bank's upcoming meeting.

By Jim J. Jubak Aug 1, 2012 8:03PM
Image: Europe (© Corbis)The economy is weaker, but not weak enough to move the Federal Reserve to action.

"Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year," the statement from the Federal Reserve's Open Market Committee read Wednesday.

But the U.S. central bank didn't announce a new program of quantitative easing or even extend its promise to keep rates exceptionally low through at least the end of 2014.

The former -- a new program of buying of Treasuries or mortgage-backed assets -- was an outside chance, market wisdom held in the days before the Fed meeting. But the latter had been gaining support as a likely alternative to any more drastic action. In the event, however, the Fed did even less than expected with a vague gesture toward slowing economic growth.

But even that disappointment didn't move U.S. stocks significantly -- the Standard & Poor's 500 Index ($INX) was down just 0.29% for the day at the close -- because all eyes remain focused on Thursday's meeting of the European Central Bank.

Traders are excused if they didn’t want to put on new positions Wednesday, in either direction, since Thursday's announcement has the potential to move the market big time. I think that’s especially true if the actions announced by ECB president Mario Draghi turn out to fall short of the comprehensive package of interest rate cuts, increased bank lending, and resumed bond buying that Draghi sketched in over the last week.

The euro fell Wednesday by 0.63% to $1.2226. I don't think that’s an indicator of the market’s view on what Thursday might bring from the European Central Bank. Rather I think the U.S. dollar rallied slightly against the euro on news that the Fed wouldn’t be undertaking any policy that pumped large numbers of dollars into the U.S. economy.

The schedule for Thursday calls for an announcement from the European Central Bank at 7:30 a.m. ET -- before the market open in New York -- and then a press conference with Draghi about 45 minutes later.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

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3Comments
TruthSeekerInVT
Aug 2, 2012 8:45AM
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Wasn't Draghi beaten by Rocky Balboa?
Ice Cold Sangria
Aug 1, 2012 10:34PM
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Draghi.  Addicted to the television camera and being in the spotlight.  Reminds me of our leaders.

 

But maybe . . . Ben has finally come to realize how successful quantitative easing is.  The fact that it is not successful.  Nothing sadder than a wild west gunman with no bullets left in his gun.

 

All of them . . . addicted to the television camera.

 

Addicted.

 

Get over it.  Decades ago I asked a girl to my senior prom.  She said no.

 

Get over it Ben.

 

Get over it Draghi.

 

Sheesh.  Do we care what our leaders are doing?  We have fine young American men without any feet running in the Olympics on orthopedic devices trying to win a medal.  I think the American people know who their heros are.

 

 

 

 

 

 

 

 

TruthSeekerInVT
Aug 1, 2012 10:33PM
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It's all bulsh@t...let Europe go bankrupt and stop injecting "funny money" in the system both here and abroad.
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