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Weekly Recap

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Eurozone GDP shrinks .2%

The gross domestic product of the 17 countries using the euro fell 0.2 percent quarter-on-quarter.  They also revised the year-on-year fall to 0.5 percent from a previously reported 0.4 percent.  Stronger than expected exports limited the Eurozone’s contraction but was unable to keep the Swiss economy from a negative number of .1 percent missing economist expectations of .2 percent growth.

Draghi Outlines Bond Buying Program

ECB President Mario Draghi unveiled the details of a plan that would allow for the buying of unlimited amounts of sovereign European bonds.  The markets seemed to like the idea of a more defined bond buying program designed to lower borrowing costs for struggling Eurozone countries.  Markets rallied Thursday with the US markets moving to levels not seen since January of 2008.  However, on the negative side, the program is sterilized and comes with conditions.  Countries that need to agree to the program already have very weak economies, adding conditions will most likely hurt their economies at least short term and it could be argued that sterilizing the bond buying could actually be deflationary in nature.  On the street all eyes are on Spain to see if they sign up and if so how this first test will halt the flight of capital from Spain.

Weak Jobs Number In US

The US labor department reported that the economy added 96k workers last month versus a median estimate of 130k.  Also the June/July numbers were revised down by a total of 41k.  The unemployment rate dropped to 8.1% but importantly all the decline in the unemployment rate was attributable to a drop in the labor force and not an increase in actual jobs.  As a result the expectations of the announcement of QE3 by the Fed next week has increased around the street.

There was a relative muted response from weak jobs numbers in the equity markets after an initial slight increase in the S&P futures, but both Gold and Silver had a strong reaction higher pinned on the hopes of QE3.  With gold also being helped on Friday by a $350 million secondary by the closed end fund Sprott Physical Gold trust which essential takes $350 million worth of gold out the gold market indefinitely.

China Infrastructure Investment

China gave the green light to 60 infrastructure projects worth more than $150 billion, as it looks to energize an economy mired in its worst slowdown in three years, fuelling hopes the world’s growth engine may get a lift from the fourth quarter.  Prices of shares and steel futures contracts jumped on the plans to build highways, ports and airport runways.