This week's thought-provokers for investors

(PresseBox) ( Zürich, )
Stocks and commodities did well after the Fed announced new stimulus measures on Wednesday, with the S&P 500 reaching a 52-week high. Gold approached USD1400/oz. US Treasuries advanced, while EUR bonds were subject to some profi t-taking. The USD weakened against all currencies.

The FOMC announced a new round of quantitative easing. The Committee decided to expand its holdings of securities to promote a stronger pace of economic recovery and to help ensure that infl ation, over time, is at levels consistent with its mandate. The Fed will purchase another USD600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about USD75 billion per month. The announcement was about in line with market expectations of USD500 billion.

This gives the economy more time to recover, but it remains questionable if more of the same will really help. It will be interesting to see how other central banks decide to fi ght the negative impact of this quantitative easing.

US mid-term congressional elections showed President Barack Obama how frustrated voters are with the faltering economic recovery. With unemployment at 9.6% and the economic recovery moving slowly, voters cited concerns about the direction of the economy as their primary worry. According to John Boehner, the incoming Republican House speaker, the Republicans will focus on a "smaller, less costly and more accountable government."

This sounds like upcoming spending cuts and disputes between Democrats and Republicans, which is likely to slow the speed of change.

The US factory index reached a fi ve-month high. In October the ISM Manufacturing expanded more than forecast to 56.9 (levels above 50 signal growth). US exporting companies are profi ting from rising demand in overseas markets, where the October manufacturing report showed a very strong expansion.

The latest economic data have been surprisingly positive and might further bolster confi dence.

US consumers are beginning to spend at levels not seen since before the fi nancial crisis, according to new data from large credit card processors and economists. Third-quarter results from MasterCard, Visa and American Express showed an upturn of domestic spending. Consumer spending adjusted for infl ation grew 2.6% in the third quarter. Interestingly consumer savings also increased to a rate of 5.5% in the quarter.

This increase in domestic spending is not only surprising but somewhat worrying. Are US consumers going back to their old ways?

The World Bank urged China to raise rates as the trade surplus is rising again. The bank also upgraded its growth forecast to 10% for the year and expects further interest rate increases to contain infl ationary expectations. "A lack of success in rebalancing China's growth pattern would be among the most serious medium-term risks for China and the world economy", the bank said.

China is focussing on improving domestic demand and will probably succeed in doing so.

Concerns of upcoming infl ation driven by stronger economic growth made Australia and India raise interest rates ahead of the central bank meetings in the USA and Japan. The Reserve Bank of Australia surprised observers by raising the overnight cash rate target to 4.75%. This was the fi rst move after six months of calm. The Indian central bank's step had been largely expected.

In a world where everyone is talking about quantitative easing, this tightening bias sticks out and shows how unsynchronised the recovery is. It also underpins the dislocation eff ect further quantitative easing in developed countries is having.

Dublin and Lisbon faced surging debt costs for the week after France and Germany proposed a mechanism to solve future Greek-style sovereign debt crises. Under the proposal, investors would shoulder a greater share of losses in future state bail-outs. Yet such a solution is likely to prove diffi cult to impose. This talk about possible restructuring of debt in future might lead to an involuntary market reaction. In other words turn into a self-fulfi lling prophecy.

Stefan Angele, Member of the Executive Board Head Investment Management

Stefan Angele is Head of Investment Management at Swiss & Global Asset Management (formerly Julius Baer Asset Management) and member of the Executive Board. He joined Julius Baer Asset Management in September 2006 as Managing Director and Head of Asset Allocation & Fixed Income. Before joining Julius Baer, he held various positions including Head of Institutional Asset Management at Zürcher Kantonalbank. He also worked in Portfolio Management and Private Banking at Credit Suisse. He graduated in economics from the University of Zurich. He also holds a Swiss Federal Diploma for Financial Analysts and Portfolio Managers and is a Certifi ed European Financial Analyst (CEFA).

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