US futures edge higher as central bank stimulus hopes grow

US futures edge higher as central bank stimulus hopes grow

By Craig Erlam on Aug 18, 2014 08:07:41 GMT

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Disappointing economic data is proving to be the best thing for the markets right now as traders look to central banks to provide additional stimulus in order to support the mild economic recovery.

This is particularly the case in the eurozone, where, as we saw yesterday, growth isn’t just eluding the periphery, it’s also proving a difficult task for the core. The three largest members of the eurozone – Germany, France and Italy – all failed to record any growth in the second quarter, with Germany contracting by 0.2% and Italy falling into its third recession since the crisis began.

With inflation currently standing at a miniscule 0.4%, pressure is growing on the ECB to start a program of quantitative easing in order to avoid slipping into the unenviable state that Japan found itself in for the last couple of decades, of marginal growth and deflation. The ECB has been very reluctant to buy government bonds in recent years and is likely to put it off for a few more months yet, as it only recently announced an alternative batch of stimulus measures, but that isn’t stopping investors betting on another stimulus package.

It’s not just the ECB that traders are banking on remaining accommodative, forecasts for the first rate hike from the Bank of England are also being scaled back and the Fed has so far refused to change its dovish stance while so much slack remains in the labour market. I’m not convinced that we’ll see indices majorly surpassing the current record highs, but it may be enough to sustain them near those levels for a little longer.

As for today, there’s plenty of economic data being released, although none of these are high impact numbers. The empire state manufacturing index, UoM consumer sentiment reading and industrial production figures will all be released and could have some impact on the markets, but given the timing of the release, it’s unlikely to be excessive.

Ahead of the opening bell on Wall Street, the S&P is expected to open 5 points higher, the Dow 40 points higher and the Nasdaq 12 points higher.

About Craig Erlam

Craig Erlam is Market Analyst at Alpari UK. He joined Alpari (UK) at the beginning of 2012 after four years in the financial services industry, including working at Goldman Sachs. Craig writes market commentary that regularly appears on websites including The Financial Times, Reuters, BBC, The Telegraph and FOX Business. He also provides insight and analysis for clients which he posts daily on Twitter, Google+ and the Alpari (UK) website. You can also find Craig on YouTube where he gives short market updates, including charting analysis.

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