David Morris

THE LAST few weeks have seen an overall improvement in reported economic data, especially in the US. We have seen a pick-up in a number of influential reports, including the Richmond Fed manufacturing survey, the Chicago Fed National Activity index, Chicago PMI and consumer confidence. This led to a feeling that the economy had finally turned a corner, dispelling worries about a double-dip recession. In fact, the recent pick-up led a number of investors to question just why the Federal Open Markets Committee voted for another round of quantitative easing at all.

So last week’s data managed to confuse the outlook. The manufacturing PMI was weaker than expected yet non-manufacturing PMI beat estimates. Factory orders were sharply lower, while the weekly jobless claims number also turned wrong after recent improvements.

But the big news came on Friday with the huge miss in November non-farm payrolls and a rise in the unemployment rate to 9.8 per cent. Yet equities still managed to end in positive territory thanks to reports about a CBS interview with Ben Bernanke, in which the Fed Chairman said he could see further quantitative easing if unemployment didn’t improve.

This week we can expect the focus to turn back to Europe. Last week, Irish and Portuguese bond yields moved back down as the ECB took a leaf out of the Fed’s book and purchased debt. But this is highly controversial and can only bring temporary relief. Today we’ll hear whether the Irish government is successful in passing its budget for 2011, while European finance ministers wrap up two days of meetings amid talk that the EU/IMF bailout fund will be boosted.

In the meantime, gold and silver continue to soar. Investors are betting that governments and central bankers will attempt to inflate away their liabilities and protect bondholders from any kind of haircut. As the Fed prints dollars and other countries take action to mitigate the inflationary effects, precious metals should continue to benefit as investors move to the world’s ultimate store of value and medium of exchange.