In Germany, a week after European Central Bank President Mario Draghi said the central bank would do "whatever it takes to preserve the euro," an ECB policy meeting came and went with no new programs announced. Specifically, investors were banking on the ECB renewing its bond purchasing to bring down borrowing costs in Spain and Italy and stock markets soared on three continents in response to Draghi's statement, which turned out to be a bit of false advertising.
Frankly, it was a remarkable example of a well-intending novice speaking out of turn.
Quantitative easing, a likely Fed maneuver is also called printing money and for that very reason it has the predictable effect of weakening the dollar. That creates a reverse spin on commodities priced in U.S. dollars, as demand from abroad escalates when the dollar retreats.
Every Fed meeting this year that has not been followed by an announcement concerning a new quantitative easing program has been met with a stab of disappointment in the gold market from those who expected a Fed announcement would trigger a demand for gold and give their investments a quick boost.
Fed officials, like Draghi, have broken with long-established central bank protocol, which is to give only hints of future maneuvering with the most carefully coded phrases. The idea was not to stir the pot until policies were decided. There is too much at stake to be cracking wise or toying with investors' affections. The repercussions of that were amply demonstrated when Draghi's remark was met with a surge in equities.
Chance Gardner, the character from Jerzy Kozinski's novel "Being There," makes empty-headed comments about plants and gardening that are misinterpreted as masterful metaphors of economic policy. This is the kind of mistake the Fed needs to avoid to keep confidence in the central bank high.
In minutes of the Fed's July 31-Aug. 1 Open Market Committee meeting, consistent with Chairman Ben Bernanke's push for greater transparency, the Fed says, "Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."
That's not just strong stuff -- that's virtual dynamite. With due respect, it could be said that some Pavlovian response is to expected. Unless commodity traders simply believe they have fallen for these hints once too often, the Fed saying too much can backfire.
But how this plays out will not be known until the next Fed meeting ends Sept. 13.
In international markets Thursday, the Nikkei 225 index in Japan rose 0.51 percent while the Shanghai composite index in China gained 0.25 percent. The Hang Seng index in Hong Kong added 1.23 percent while the Sensex in India was flat, rising 0.02 percent.
The S&P/ASX 200 in Australia climbed 0.18 percent.
In midday trading in Europe, stocks were mostly lower. The FTSE 100 index in Britain was up 0.17 percent while the DAX 30 in Germany lost 0.21 percent. The CAC 40 in France shed 0.26 percent while the Stoxx Europe 600 gave up 0.14 percent.