Big Picture: Various indicators shedding some light on corporate investment behaviour are suggesting that a meaningful acceleration of investment is either underway or imminent. That is important and very positive. For the recovery to become self-sustaining and more firmly based, investment is exactly what we need. It will create jobs and income growth, which will support spending growth. Meanwhile, industrial activity has gained momentum, but inventories have risen in the US. This implies that US production growth may ease a little in the short term allowing demand to catch up. Nevertheless, the outlook remains upbeat.
Interest rates: The eurozone’s liquidity surplus has fallen significantly and this has started to put upward pressure on interbank rates. At the recent ECB Press Conference, Mr Draghi said that an unwarranted tightening of short-term money markets would be a trigger for action. Therefore if the above trend continues, it increases the probability that the ECB would take action to either put more liquidity in the system, or cut policy rates, or both. Perhaps the simplest initial option would be the stopping of the sterilisation of the SMP.
FX: The impact of the weak US employment faded quickly in currency markets mainly driven by strong US economic data, which underlined that the economy remains on a strong footing, and the perception that this weak employment report will not change the course of the Fed. Tighter liquidity conditions continue to support the euro, but they also make ECB action to ease policy more likely, which would undermine the currency. Meanwhile, the Australian dollar weakened even further because of weak employment data.