While we are not a proponent of words without actions, this was a mantra that worked for the world’s largest central bankers this week. The monthly meetings from the ECB and Fed were widely anticipated for action on European bond buying, possible lending programs and the many other things that need to get done to fix Europe. In the U.S., some form or acknowledgment of QE3 was expected. Instead, we were made promises that both monetary authorities would stand ready to do what was necessary if the data warranted such actions. The initial trade was a thumbs down vote for Mr. Draghi, while Helicopter Ben was thought to be biding his time before he eventually showered more money onto the financial markets. For the moment, the markets are comfortable that action will occur in the near term, and we will make it through the end of the Eurozone leaders’ vacation schedule without a major meltdown. Today’s nonfarm payroll provided a long overdue headline beat, although details on the release were much less rosy, particularly a rise in the unemployment rate and a decline in the participation rate. We will wait for Chairman Bernanke to provide more clues on QE at the end of the month during the Jackson Hole convocation, while technicals remain very positive for the fixed income market, with low inventories, strong cashflow and excessive appetite for anything perceived as safe and providing a yielding spread to Treasuries.
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