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Fed’s meeting and ruling on ESM, crucial rendez-vous

World economy

Morning! There’s a lot of event risk this week. Among things investors will be looking up are the Federal Reserve’s meeting and German Constitutional Court ruling about the legality of the European Stability Mechanism. It’s not that the court will rule against the ESM, but it could attach conditions that would make it react slowlier. […]

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Morning! There’s a lot of event risk this week. Among things investors will be looking up are the Federal Reserve’s meeting and German Constitutional Court ruling about the legality of the European Stability Mechanism. It’s not that the court will rule against the ESM, but it could attach conditions that would make it react slowlier.

“Investors are likely to keep focusing on the ECB’s plan as a roadmap, which it’s been lacking for quite a while,” Brian Gendreau, market strategist with Cetera Financial Group, told CNN Money.

As for the Fed, officials are widely expected to unveil a new bond-buying program to prop up the U.S. economy, mostly after last weeks’ loomy jobs report (Labor Department said employers added 96,000 jobs in August, fewer than expected).

The future of the dollar is on stake. The so-called quantitative easing would involve printing money and would lower U.S. bond yields, which is likely to weaken the green note. Will the Fed act? And if so, will it change the very slow pace of U.S growth? Analysts seem skeptical.

Steven Ricchiuto, chief economist at Mizuho Securities, thinks stock investors are likely to be “disappointed” because the Fed will extend the period during which it will keep short-term interest rates near zero, he told AP.

Hugh Johnson, chairman and chief investment officer of Hugh Johnson Advisors, shared the same feeling with AP.

“If there was something dramatic to come out of Washington, such as a very sharp decline in tax rates and an increase in government stimulus, that might excite optimism and lead to more borrowing or spending or investing. But they’re not going to do something in Washington because they can’t agree.”

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