Bad economic news on jobs and Italian bonds is good news to Wall Street looking for Fed to move

04/12/2012 1:38 pm EST


Jim Jubak

Founder and Editor,

If bad economic and bond market news raises the odds that the Federal Reserve and other central banks will launch another round of monetary stimulus, then “bad” news is really “good” news, right?

That’s the logic today when despite—perhaps better yet, “because of”—bad news on U.S. unemployment and Italian bond yields, global stock markets have moved back into rally mode.

This morning the Department of Labor announced that initial claims for unemployment increased by 13,000 to 380,000 for the week that ended on April 7. (The jump would have been bigger except that initial claims for the previous week were revised upwards to 367,000 from 357,000.) That was the highest level since January 28. The less volatile four-week moving average climbed to 368,500 from 364,250. Economists surveyed by Bloomberg had expected 355,000 initial claims for the week.

At today’s bond auction in Italy the government sold 2.88 billion euros ($3.78 billion) of its 3-year note at a yield of 3.89%. The amount auctioned was less than the maximum target of 3 billion euros and the yield was up from 2.76% at the previous auction on March 14.

But global stock markets have apparently decided that none of this matters as much as comments out of the Federal Reserve today that hinted, in the markets’ read, at a new round of quantitative easing from the Fed perhaps as early as its April meeting. (Seems unlikely for April, to me, given the Bernanke Fed’s practice of telegraphing every move.) In separate speeches Federal Reserve Vice Chairman Janet Yellen and New York Federal Reserve Bank President William Dudley both repeated the Fed’s commitment to keeping interest rates at their current extraordinarily low level through the end of 2014. Somehow the markets have heard that as two votes for another round of quantitative easing. The Federal Reserve next meets on April 24 through 25. You can bet that Wall Street will parse the Fed statement within an inch of its life for clues to the timing of another stimulus effort.

The gold markets are also convinced that more monetary easing is on the way. Gold was up 1.1% to $1679 an ounce as of 1:30 p.m. New York time.
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