Why Stop Printing Money Now?
Chair Yellen frequently reminds us how effective and innovative QE is as a monetary policy tool. She even referred to the monetary actions, of her former boss, as heroic at a commencement speech this past spring. Literally…QE has saved the financial world. We must thank Mr. Bernanke and Ms. Yellen for being so Ivy League and Beltway intelligent.
And, also, how generous of them to share this amazing gift of theirs with our friends in the developed world [UK, Japan, and the EU, from what I understand, is now beta testing the program]. This magical elixir is sure to cure any and all global economic ills.
Come to think of it why don’t we erect two massive monuments of the both of them? They can be built right in the middle of America for everyone to see. And since Ms. Yellen seems to be so diminutive we can build both of them really big…each one 500 stories tall to match their massive intellects. The project will surely create hundreds of jobs and the payroll can be “covered” by a “one time” ceremonious QE4.
But what I’m really curious and concerned about is the following:
With a meeting of the Federal Reserve and the possibility of a successor to chairman Ben Bernanke being announced, September always looked a critical month for investors. Next week, though, eyes will be firmly on Congress.
Here is what to watch for next week:
The US Congress will reconvene its 113th session on Monday after a summer break, with a debate and votes expected on President Barack Obama’s plan to launch a military strike on Syria.
Mr Obama has said he will wait for votes in both the Senate and House of Representatives before taking action against Syrian President Bashar al-Assad’s forces, but has refused to speculate on what he will do if Congress votes against action.
Apple’s product launch:
Silicon Valley and the rest of the world will get a look at new products from Apple on Tuesday in what’s expected to be the first major hardware announcement from the company this year. Read More
US Treasury Secretary Jack Lew has warned that Republicans don’t have a plan to avoid a stand-off over raising the country’s debt ceiling.
Republican leaders in Congress have “an understanding of the seriousness of this issue,” Mr Lew told CNBC. However, “I don’t yet see that they have a plan to avoid it (a stand-off).”
The US Treasury yesterday said it will run our of borrowing authority in the middle of October, ratcheting up pressure on Congress to agree a plan to raise the $16.7tn debt limit.
A fight over the limit in 2011 raised the spectre of the US defaulting on its debt for the first time, as agreement on lifting the limit was reached only at the last minute.
Republicans want to use the debt limit as leverage to push for lower public spending.
Next week is the last in August, but as this month has so far shown, the summer is proving far from dull.
Here is what to watch out for next week:
Eurozone in focus:
With sentiment improving towards Europe’s economy, there will be hope that next week’s data offers some confirmation.
Eurozone employment figures will be released, which are forecast to show that unemployment stayed at 12.1 per last month. Germany and Italy will also publish unemployment data. Economic confidence and inflation reports for the Eurozone are also due on Friday.
Several economic reports in the US will also be released, including the second estimate of how the economy performed last quarter. Read More
A limit on how much the US Treasury can borrow was introduced as part of the Second Liberty Bond Act in 1917, to ensure transparency and public debate about the government deficit.
The limit has been raised many times after the financial crisis to avoid government shutdown and has become trigger for partisan infighting.
2008: The ceiling is raised both in the Housing and Economic Recovery and the Economic Stabilization Acts to $11.3tn.
2009: The limit is raised to $12.1tn with the American Recovery and Reinvestment Act and then to $12.3tn in December.
2010: In February, the limit is raised to $14.3tn. That November, Republicans win the majority in the House of Representatives, vowing to make deep spending cuts, and kicking off years of political stand-offs. Read More
When it comes to losing money this year, investors could barely have done worse than buying long term Treasury debt, which has seen a double-digit percentage loss.
Now, their stomachs are set for a further test, as the US Treasury seeks buyers of long term paper, albeit at the highest yields since August of 2011 and a full percentage point above their auction levels in May.
The scale of demand for the latest slug of Treasury issuance will go a long way to determining whether the bond market has priced in the prospect of less easing from the Federal Reserve, which has been buying $45bn of government bonds per month so far this year.
Any reluctance to own Treasuries at their current levels, on the part of investors would suggest yields, which move inversely to prices, have further room to rise. That would likely trouble policy makers, who have sought to curb the rise in bond yields in recent weeks as it has driven up the cost of borrowing for new and prospective homeowners and is seen potentially weighing on the broad economy’s recovery.
One bullish indicator is that when the 10-year note yield hit a peak of 2.75 per cent last month, strong buying emerged. Read More
It’s a bond auction whose results will arguably provide as much cheer at the Federal Reserve as at the US Treasury.
Demand at the Treasury’s auction of $35bn of two-year notes has surpassed that at the previous monthly sales in June and May.
The so-called bid to cover ratio of 3.08 – a measure of demand – was higher than the 3.05 recorded in June and 3.04 in May.
Federal Reserve chairman Ben Bernanke has been at pains to stress that although the central bank has signalled its intention to cut quantitative easing this year, short-term interest rates will be kept low well into 2015.
The two-year notes were sold with a yield of 0.336 per cent, lower than the 0.338 per cent banks surveyed by Bloomberg had expected.
However, the bid to cover ratio still trailed the 3.54 average of the last 10 auctions.
It used to be a day of marvel on Wall Street. Now Apple’s release of its quarterly earnings is treated with a measure of trepidation by investors.
The iPhone maker is the most notable company to report results on the busiest day so far for second-quarter earnings season.
Before the stock market opens, we will hear from:
- Lockheed Martin
- United Technologies
Then after Wall Street closes, Apple is joined by AT&T and Electronic Arts.
By contrast, the economic calendar is a light one. There’s a housing index for May from the Federal Housing Finance Agency, but given mortgage rates have climbed significantly since then, investors may not pay it too much attention. Read More
As interest rates started to rise in May, global central banks boosted purchases of US Treasuries, with demand from China, France and Ireland particularly strong. But private investors, such as hedge funds based in the Caribbean, went the other way in droves.
The bulk of the buying was concentrated in Treasuries, with central banks adding $40.3bn of the securities, while private accounts sold $32,3bn in May, according to official data released on Tuesday. China and France bought $25.2bn and $6.2bn in Treasuries, respectively.
Vivianne Rodrigues, US Capital Markets correspondent, reports that global central banks took on the securities in the aftermath of strong US employment data in April, which sent the jobless rate to a four-year low. But the the move did not pay off. Read More
The US budget surplus widened to its highest level since April 2008 in June, as tax increases put in place earlier this year topped government expenses during the month, new data from the US Treasury shows.
The June surplus totalled $116.5bn, narrowing the fiscal year-to-date deficit to $510bn, 44 per cent less than at the same point in 2012.
Earlier in the week, the Obama administration projected the deficit would decline to $759bn in the year ending September 30.
The government said outlays fell 47 per cent in June to $170.1bn, while receipts improved 11 per cent o $286.6bn.
Part of the gain was attributable to dividends paid by Fannie Mae and Freddie Mac, the government-backed mortgage companies. In May Fannie Mae said it would paythe Treasury $59bn.