Morning Snapshot

27-Apr (USAGOLD) — Gold has pushed to new highs on the week, buoyed by the BoJ’s pledge of an additional ¥10 trillion in asset purchases and another uptick in QE3 expectations here in the States as well. While the yellow metal remains narrowly confined within the recent range, upside pressures seem to be mounting.

Fed chairman Bernanke very clearly indicated earlier in the week that the Fed stands ready to initiate “additional balance sheet actions if necessary”. The central bank has maintained of late that the launching of additional quantitative measures is data dependent; well if the Fed’s finger is hovering over the switch to the printing press, today’s weaker than expected Q1 GDP print likely made them flinch. Taken in conjunction with recent misses on durable goods orders, housing data, employment data, among others, arguably the odds of QE3 have risen significantly in recent weeks; the Fed’s own rosier outlook on the economy not withstanding.

While ¥10 trillion ($124.3 bln) is not exactly chump change, the market was quick to realize this was no big bazooka. With inflation currently around 0.2%, it’s going to take a lot more than ¥10 trillion to get inflation up to the 1.0% target. In his press conference, BoJ Governor Shirakawa acknowledged that the central bank was taking a gradual approach to raising prices amid worries of a destabilizing overshoot saying, “Recklessly easing without taking into account that lag effect would destabilize price moves.”

With the Japanese economy contracting, the UK back in recession, moribund growth in the US, persistent worries of a hard-landing in China and Europe back on the brink of turmoil, I’m not sure global markets will have much tolerance for monetary prudence. In fact, I would expect calls for reckless abandon on the monetary policy front to grow louder and louder as oppressive and growing debt loads continue to weigh on growth.

The markets and economies of the world are addicted to cheap and easy money, withholding that now is going to result in a fierce case of the DTs world wide. As with an addict, withdrawal is a necessary process that must be endured if there is any hope of resuming with a more normal and worthwhile existence. But in the worse case scenarios, if the addiction is so great, the withdrawal process can kill the patient.

I don’t believe we’ve reached that point yet, but the continuation of über-easy monetary policy, liquidity measures and other accommodations certainly push us ever-closer to that point.

• University of Michigan sentiment (final) revised higher to 76.4 in Apr, above market expectations of 75.7, vs 75.7 initially.
• US Q1 ECI +0.4%, below market expectations of 0.5%, vs 0.5% in Q4-11.
• US Q1 GDP +2.2%, below market expectations of +2.5%, down from 3.0% in Q4-11.
• Germany GfK consumer confidence fell to 5.6 for May, below expectations of 5.9, vs 5.9 in Apr.
• Germany import price index +0.7% m/m in Mar, below expectations of 1.0%, vs 1.0% in Feb; +3.1% y/y.
• Switzerland KOF Leading Indicator rose to 0.40 in Apr, above expectations of 0.13, vs upward revised 0.09 in Mar.
• France PPI +0.5% m/m in Mar, below expecations of +0.6%, vs negative revised 0.7% on Feb; +3.7% y/y.
• Italy retail sales (sa) +0.6% m/m in Mar, vs positive revised +1.1% in Feb; +0.1% y/y.
• Japan housing starts +5.0% y/y in Mar, vs +7.5% y/y in Feb.
• Japan construction orders -0.3% y/y in Mar, vs -1.8% y/y in Feb.
• BoJ holds steady on Target Overnight Call Rate at 0.10% max. Increases asset purchases by ¥10 trillion.
• Taiwan Leading Economic Index +1.2% m/m in Mar, vs upward revised +1.2% m/m in Feb.
• Malaysia M3 +15.0% y/y in Mar, vs +15.9% y/y in Feb.

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