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QE In & Out: FED says bye, BOJ applies more, ECB ready to launch it? NFP to impress

Had you had enough fun yet? Well don’t get complacent:  huge fundamentals are also expected to rock the markets next week, being at the top ECB economic policy meeting and US Payrolls. 

Over these last few days, we had expected and unexpected surprises all across the globe: as expected, the FED trimmed the last $15B of their facilities programs, saying bye-bye to QE, amid signs of a strengthening economy. Key note on their statement came from an upgrade of the employment situation, by taking out the “significant underutilization” wording and stating that labor market conditions “improved somewhat further,” replacing that with “underutilization of labor resources is gradually diminishing.” Dollar soared across the board, stocks surged and gold eased. The movement made a pause on Thursday, as despite US GDP ended up above expected, at 3.5%, the composition was not as optimal, with high government expenses and weak exports and imports data amid global slowdown, putting the greenback under some limited short term pressure.

Nevertheless, BOJ came to the rescue early Friday, announcing a surprise expansion of its monetary easing program, from previous ¥60-70-trillion to a total of¥80-trillion yearly basis: yen sold off against all of its rivals, Nikkei up roared to a fresh 7 year high while gold sunk to a 4 years one, S&P points to open above 2000, and DJIA at new record highs. 

All in one, the US continues to lead the global economic recovery: it may not be a strong one, but the imbalance among major’s economies Central Banks has widened: Japan expands its QE, 24 hours after the US ends its own As for Europe, the news add to pressure on the ECB to act, as soaring EUR/JPY may force Draghi’s hand to launch as early as Q1 2015 a broader based QE program against German’s will. 

So, what can happen next week that can change this scenario? Actually only a miracle: with EZ inflation at 0.4% monthly basis, buy YoY one stood at  0.7%, the ECB has no room to maneuver towards a more hawkish stance, something than anyway the bank does not want: they need a weaker EUR to boost the economy. If Mario Draghi announces further easing against the odds, the imbalance will only widen, and after the unpredictable initial reaction, the EUR will likely resume its slide towards fresh lows. Nevertheless, the ECB is expected to keep on working on its ABS program, expected to be launch this November, but bring nothing new to the table.

As for the US, the monthly employment figures will be released on Friday: market expects unemployment rate to hold at 5.9%, and the economy to add 229K following 248K jobs added last month. But the expected number seems a bit conservative: over the last few weeks, weekly unemployment claims held below 300K, near levels last seen in 2000. The 4 week average stands nearly 20% below a year ago, all of which suggest an upward surprise on the NFP headline, with labor market showing signs of improvement. Quiet unexpected the fact that market lowered expectations, as it has been the other way around for these last couple months. Anyway, a reading above 250K with no downward revisions to previous numbers and a steady or better unemployment rate, should only boost dollar rally across the board. If the number disappoints but stands anyway around 200K, dollar may ease short term, but market will rather see it as a buying opportunity than the beginning of a bearish run.