Binary Options Markets Reviews 21/12/2012

Monetary policy again expanded by the Fed yet again

Fiscal Cliff: U.S. politicians continue to be entrenched in their positions regarding the fiscal cliff. The talks between U.S. president and House of Representatives speaker, republican John Boehner continued during the weekend, but there had been no progress regarding how to resolve the crisis.

QE4: in line with investors’ expectations, the Fed announced that instead of purchasing $45 billion through the “Operation twist” program, it will purchase government bonds in the same volume. This program is in addition to the QE3 program launched in September, in which the Fed purchases mortgage-backed securities at a pace of $40 billion per month. All together, the Fed’s balance sheet is expected to increase by a trillion dollars by 2013. We note that the QE3 and QE4 programs have no deadline, as their length and extent are directly dependent on the performance of the labor market and inflation. The Fed announced: “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability”.

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We note that the Fed’s additional expanding of monetary policy did not surprise market participants, see the decline in gold prices and the Treasury yield increase after the announcement.

Zero interest rate policy in the U.S.: the Fed has updated the future path of the zero interest rate policy, when it dropped its statement that the interest rate is expected to remain at its current level until mid-2015 and noted that the interest rate path now depends on economic data such as unemployment and inflation. We emphasize that according to the Fed’s expectations, the new goals are consistent with the previous forecast (zero interest rates until mid-2015).

Economic data released last week were mixed: negatively, we note the sharp and lateral decline in real exports in October (-4.8%) and the sharp decline in real imports (-3.7%). On the other hand, retail sales (excluding vehicles and fuels) rose in November by 0.7%, though expectations were +0.4%. In addition, U.S. industrial production jumped by 1.1% in November (-0.7% in October.) It is likely that both parameters were significantly affected by damage remediation after hurricane Sandy.

Mixed data from China and Europe

Eurozone economic data continues pointing to the prevailing recession, although we
positively note that the deterioration recorded in most expectations surveys has stopped. On the negative side we note that industrial production in the Eurozone fell sharper than expected in October, reflecting an annual reduction of 3.6%. More positively, we note the slight increase recorded in the preliminary manufacturing PMI (Purchasing Managers Index) in Europe to a level of 46.3, compared with 46.2 in November. We emphasize that although the absolute level of the PMI index is still very low, the index indicates the expected halting of the deterioration of the industrial production.

Italy: a sharp increase was recorded in Italy’s government bonds yields last week. Later on there was a steady risk premium decline, so all together, the 10 years yields increased relatively moderately by 8 basis points during the week. One of the reasons for the moderation in market concerns are Silvio Berlusconi’s words that if Mario Monty accedes to the request of the moderate bloc to run for prime minister, he would not run against him.

Greece: the payment transfer to Greece, as part of the bailout program, was officially approved by European finance ministers. We note that Greece’s 10 year bond yields continued to decline quiet sharply in the past week.

China: data released last week regarding Chinese economy was mixed. Positively, we note that the HSBC manufacturing PMI rose in December (preliminary estimate) by higher than expected, to its highest level in the past 14 months. Earlier in the week, the industrial production and retail sales indexes rose by higher than expected as well. We shall note that as in the U.S., China also published its disappointing trade balance data for November, which indicates a more moderate increase than expected in exports and stability in imports.

Economic releases and events of the week

Monday: New York Empire state manufacturing

Wednesday: U.S. housing starts and building permits, IFO Germany business climate

Thursday: Eurozone consumer confidence Indicator,U.S. existing home sales,Philadelphia Fed business outlook, Third estimation for U.S. 3Q GDP

Friday: U.S. personal income and U.S. personal spending

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Binary Options Markets Reviews 21/12/2012
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Author: David Wilson