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Euro Zone Inflation, Unemployment Data Indicate Need for Fiscal Stimulus

By:
James Hyerczyk
Updated: Aug 31, 2016, 12:21 UTC

Fresh economic data released a short while ago revealed that the Euro Zone is stuck in an uninspiring economy. According to Eurostat, Euro Zone inflation

European Central Bank, Frankfurt

Fresh economic data released a short while ago revealed that the Euro Zone is stuck in an uninspiring economy. According to Eurostat, Euro Zone inflation came in unchanged at 0.2% in August while unemployment for July held steady at 10.1%.

The news was particularly disturbing because it came despite the European Central Bank’s monetary measures designed to stimulate spending and investment. These measures include the implementation of negative interest rates and a trillion-Euro corporate and sovereign bond-buying program.

The news raises questions about the effectiveness of monetary policy, suggesting that perhaps aggressive fiscal measures may be necessary to stimulate the economy.

30-Minute EURUSD

The Euro had little reaction to the news because the numbers were largely expected. Furthermore, the focus this week remains on key U.S. economic data. The EUR/USD is currently trading at 1.1145, up 0.0004 or +0.04%.

The single currency is likely to react to today’s private sector jobs forecast from ADP and Chicago PMI. The main report is Friday’s U.S. Non-Farm Payrolls report.

30-Minute Comex Gold

December Comex Gold futures are trading steady-to-better with the market basically mirroring the direction of the U.S. Dollar. The most active gold futures contract is trading at $1317.30, up $0.80 or +0.06%. Spot gold was last reported at $1314.19 per ounce.

Volume and volatility were light in the early trade with traders hesitating to take a position ahead of today’s economic reports. The ADP report, due out at 1215 GMT, could create some volatility if it misses the estimate of 175K. A greater-than-expected figure should put pressure on gold prices. A lower number will likely underpin the market.

Comex Silver rose 1 percent to $18.77 per ounce. Platinum was up 0.7 percent at $1058.90. It touched an eight-week low of $1048.00 on Tuesday. Palladium rose 0.9 percent after touching a five-week low of $670.72 during the previous session.

In other news, activity in the U.S. stock index futures indicate that investors expect a flat opening on Wall Street as investors look ahead to the ADP report.

Investor sentiment was weak in Europe and Asia. Lower demand for higher risk assets continued to weigh on prices with most investors waiting for guidance from the Fed as to the timing of the next rate hike. Since this decision is data dependent, the main focus this week is on Friday’s U.S. Non-Farm Payrolls report. The strength of this report will likely determine whether the Fed hikes rates in September or December, or perhaps not at all.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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