Today’s Economic Shakers

Wall Street in downbeat mood as central banks leave investors concerned...

Based on US stock futures, it looks like equity markets are on track to start the morning deeper to the downside than it has in a while.

The Dow looks like it will open down by triple digits, which would mirror the declines of both the European and Asian equity markets. OIl, too, is trending bearish this morning, reversing some of the profits gained over the course of the week that were due to a surprise drop in US crude stockpiles.

The downside move by investors this morning may be in response to comments and actions by the world’s key central banks.

The Federal Reserve, which is scheduled to hold its next FOMC meeting starting September 21, will reveal at that time whether it will hike interest rates this month.

Comments made yesterday by the Boston Fed President, one of its voting members, indicated that he thought the central bank could resume gradual rate hikes as the economy was more in balance. The key word was “balance”, as that was part of the language used the last time the Fed hiked rates in December 2015.

Across the pond, yesterday’s comments by the European Central Bank (ECB) revealed that the Fed’s European counterpart would not be introducing any new, or extending, any existing, stimulus measures at this time.

The news contributed to the bearish turn that the European bourses, as well as Wall Street, experienced following the ECB announcement.

The Hot Take-Away —

Though not entirely unexpected, the announcement by the ECB to hold off on further monetary stimulus seemed to leave investors concerned that the “free money” era that has supported the equity markets since the 2008 crash may finally be coming to an end.

In fact, the ECB has little choice but to expand its current bond purchasing program, as the negative interest rate environment of some of the eurozone banks probably means that they can’t survive the stress of a withdrawal of the current degree of stimulus the ECB provides its member-banks.

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For the first time in 3 weeks, the dollar is on course for a decline against the euro...

The US dollar looks to be on track for losses against the euro this morning, which would end a string of gains dating back about 3 weeks.

The decline comes in response to the latest comments made by both the Federal Reserve and the European Central Bank, with the Fed’s argument for hiking rates weakening and the ECB’s failure to extend stimulus measures combining to weaken the dollar.

The recent three-week rise in the dollar against the euro, as well as the world’s other top currencies, was attributed to expectations that the Fed would raise rates as early as September and that the ECB would extend the current round of both sovereign and corporate bond-buying.

But with signs of a weakening in the US economy, odds of the Fed hiking rates appears to be dropping, according to the latest polling of economists. The latest ISM services guage report showed that survey fell to a six-year low. There has also been weak data from the auto industry, as well as a drop in consumer sentiment.The ECB, meanwhile, seems reluctant to extend the current stimulus measures. The relatively stable post-Brexit economic data has given the bank pause in its monetary easing policies, at least until next month’s data begins to trickle in.