Calls for a cash injection

September is not usually a good month for the markets; let me just get out there and say it before anyone beats me up for being too cheery.

This September is unlikely to be too different from the norm. Economic data over the past few days has galvanised belief in the markets that the Federal Reserve is more than likely to inject further capital into the US economy, which has seen some assets break back into positive territory for the year but the structural issues of high debt, low growth and lower confidence remain.

If the world’s problems in 2008 were classed as “financial”, then the problems of today are more “political” as the powers that be remain woefully slow in dealing with the world’s engine slowing.

We did hear yesterday that Chancellor Merkel’s cabinet had approved changes to the European Financial Stability Fund. However if the size of the fund is not improved to close to €2 trillion then it is pointless. The vote in the Bundestag is scheduled for 29 September and gives politicians more time for fiddling while the PIIGS burn.

The pound has remained lacklustre in the past week especially after arch-dove Adam Posen called for more QE, not just from the Bank of England, but from all G7 central banks.

Posen stated that “additional monetary stimulus is the last line of defence for the advanced economies today, and G7 central banks should purchase more assets if we are to have any hope of our economies ever catching up”. He went on to say that inflation should not be seen as a threat to this plan.

There is something to be said for further quantitative easing and especially for those in the emerging markets. In the first round of global easing the funds did not stay in the US or UK but instead flooded into emerging markets keeping their economies afloat and enabling them to stay recession free.

Without a further round of QE we could see this “hard landing” in Asia that some economists have warned of.

Jeremy Cook is chief economist at World First foreign exchange