Lagarde and IMF shifting to more dovish stance

Last week marked a very definite pause in the rally in the euro, stocks, commodities and gold that we’ve seen since the Federal Reserve and European Central Bank’s new stimulus measures were announced a month ago. US, Japanese, UK, German and Swiss stock markets all lost ground over the five days, while gold, silver, the euro and US Treasury Bond yields also fell. Gold ended the week down 1.63%, while silver lost 3.12%. Platinum and palladium lost 4% and 4.55% respectively.

Gold and silver have continued to struggle in trading this morning, with gold falling towards support at $1,740 and silver looking like it could test $33. Though new Chinese current account and inflation data has come in better-than-expected this morning, Greece and Spain continue to hang on market sentiment like a wet blanket: the former because negotiations about the next portion of aid from the “troika” (the European Union, European Central Bank, and International Monetary Fund) are on-going, and the latter because Madrid still has not yet requested a bailout.

The IMF meeting in Tokyo last week attracted much attention from market watchers – notably because the body appears to be adopting a more conciliatory, dovish tone towards the Greeks and other eurozone problem countries. Yra Harris comments at his blog that the group’s latest “World Economic Outlook” talks of the need “to break negative feedback loops” vis-à-vis global growth, while IMF head Christine Lagarde and German finance minister Wolfgang Schäuble clashed last Thursday on the Greek question, with the former favouring giving Athens more time to implement austerity measures.

Harris posits that this latest IMF report could push the troika into suspending austerity budgets. This will mean much more lending from the IMF to Greece and others, and much more money printing from Mario Draghi’s ECB. The Germans are sure to wail and gnash their teeth about it, but with both the IMF and the ECB in favour of this new approach – as well as the majority of EU nations – Berlin will be forced into supporting an even more inflationary “cure” for the eurozone’s debt problem.