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Sunny today, cloudy tomorrow

Published Thursday, April 10th, 2014

The market concluded that the latest minutes released by the Federal Reserve were more “accommodating” than expected and therefore it was time to start buying again. The Dow ended the day +1.1%, the S&P +0.42% and the Nasdaq +1.72%. European stock markets also ended the day higher.

The Fed minutes were far more influential than IMF warnings in its Global Financial Stability Report that advanced economies are still far too indebted and not ready for a return to normal monetary policy.

The IMF is worried on the one hand that the continued use of QE by the Federal Reserve is building up financial stability risks and on the other that a hasty exit “could jeopardise economic recovery and exacerbate still elevated debt burdens”.

In fact investors and the IMF are worrying about the same thing – ie. the day when interest rates start rising. The difference is that investors care only about today and have concluded that there is no interest rate cloud on the horizon. The IMF worries about tomorrow, where clouds are gathering.

To read the rest of the report, please click here 

Posted by David Hufton