The long weekend was unable to make us forget Friday’s ugly labor market report that highlighted the stalled state of the U.S. economy. With Europe mired in its own intractable fiscal problems and the key emerging markets battling inflationary pressures, the global economic picture remains very uncertain.
It is this backdrop of all-around uncertainty that has been adding to the allure of safe-haven assets like gold, U.S. and German government bonds and the Swiss Franc. The Swiss central bank is going to extraordinary lengths to protect the Swiss economy from the harmful effects of the appreciating Franc. The announcement today of a floor exchange rate value for the Swiss Franc relative to the Euro is just the latest in this respect.
The market will be looking toward policy responses from the U.S. authorities. We know about the options that the Fed has been considering. There is understandable skepticism in the market about the utility of further quantitative easing to the growth problems confronting the economy. But given the overall policy paralysis in Washington, the Fed may be the only game in town. It will be interesting to see what the president has to offer in his much-hyped jobs speech on Thursday. With expectations on the lower side, the president’s speech has the potential to inspire confidence.
On the data front, this week is relatively on the lighter side. We have the non-manufacturing ISM report this morning, which will tell us the state of the service sector in August. The more important manufacturing ISM report came in better than expected last week. We have the Fed’s beige book on Wednesday and international trade data on Thursday.
The overall picture that has been steadily emerging out of recent data is mixed, though Friday’s jobs report has decidedly weakened the tone. It appears that the unseemly debt-ceiling debate and the subsequent S&P rating downgrade dealt a severe blow to business confidence in August, prompting it to shy away from making hiring commitments.
Consumers, despite their continued problems, appeared to be in much better shape. But it will be hard for consumers to remain shielded from the overall air of gloom and doom for long. Stocks will likely be in a wait-and-see mode — with a downward bias — in this uncertain backdrop.