DAX-Sentiment: Pessimists went silently for the exit

8 February 2012. FRANKFURT (Börse Frankfurt). The medium-term investors polled every week by Börse Frankfurt have apparently rethought their strategies. Perhaps it was the fact that the DAX rose by another 3.5 percent last week, for a total gain of 12 percent since Standard & Poor's lowered the creditworthiness of nine European countries on January 13th. We now see a significant drop in the number of pessimists on our panel, nearly three quarters of which proceeded directly into the bullish camp. As a result, the level of optimism measured by the Bull/Bear Index reaches slightly above this year's average.

Apart from the market's performance, Ben Bernanke's speech before the House Budget Committee may likely have given these institutional investors a new perspective on their medium-term outlook. The Fed Chairman hinted after the FOMC meeting to weeks ago that, if necessary, the inflation target could be exceeded in order to fulfil the Federal Reserve's other mandate to provide for economic growth and employment. Later, in Bernanke's speech before the House Budget Committee, he testified that the FOMC takes not only the unemployment rate but also the level of employment throughout the population into account for its monetary policy decisions. This seems to be paving the way for the Federal Reserve to go in the direction of another round of quantitative easing, QE3, even in the face of improving labour market data.

Therefore, the much better-than-expected US jobs report on Friday probably didn't change the Fed's intentions. Although various commentators were already convinced of just that, their hopes were obviously quashed; in yesterday's Senate Budget Committee testimony Bernanke downplayed the most recent unemployment data and left little doubt that the Fed would continue on its chosen path.