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By G. Steven Bray
US interest rates have been under pressure for the last couple months from events overseas, both the various armed conflicts and crummy economic data coming out of Europe. As we discussed before, it’s hard for US rates to rise when European rates are setting record lows.
Two events this week could add some volatility and break rates out of their summer slumber. Thursday brings the European Central Bank meeting. The ECB has been hinting that it will enact a quantitative easing program ala the Federal Reserve to combat weak economic growth and potential deflation. Recent analysis suggests a program announcement won’t happen this week, but I suspect markets will be disappointed if the ECB doesn’t flesh out the idea a little further, and that disappointment could bump rates up a little.
Friday brings the US jobs report, typically the most important economic report each month. I think a 25% miss either way (stronger or weaker than expected) could break markets fixation with overseas events, at least temporarily. However, in the case of a stronger report, I think the European wet blanket will temper any reaction. But such domestic strength could push rates back up to the top of their current range, which is about 1/8% higher than today’s rate.
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