The Economissed: The good ship QEIII
According to the F.T. David Tinsley, of National Australia Bank, said Wednesdayʼs Fed meeting will be a “watershed moment”, (excuse the pun) explaining that its recent QE2 purchases of US Treasuries end this month:
“Markets remain wary and more weak data over the next few weeks could trigger further talk on the possible need for another round of quantitative easing now that QE2 is ending,”
“We believe that the Fed will merely state that it will be reinvesting the proceeds of maturing assets into Treasuries, thereby maintaining the size of the Fedʼs balance sheet and preventing a de facto policy tightening,” – James Knightley of ING
Market watchers will also be closely studying Federal Reserve chairman Ben Bernankeʼs new-format press conference in the wake of Wednesdayʼs policy decisions. “Interest will be focused on the speech to see whether the Fed still expects growth to pick up in the second half, obviating the need for further stimulus beyond QE2,” said Chris Williamson of Markit. “The soft patch in growth is likely to be confirmed by the final GDP data for the first quarter published on Friday.”
Preliminary purchasing managersʼ index data for China and the eurozone will be released on Thursday, giving an early indication of whether the “soft patch” is extending into June and we may see a marginal fall in the business climate index whereas the current assessment and expectations indexes are likely to come in little changed from May. I think itʼs time to build on expectations of the opening up of the supply lines from Japan following the recent quake.
The Fed clearly have much to think about. (FOMC official web page for all past meetings including the Press Conference video from April 27th meeting. See below for the most recent side-by-side.)
On the horizon for UK is the release of Bank of England monetary policy committee minutes on Wednesday. It will also give us the first indications of just how hawkish the new member Ben Broadbent will be on policy. Broadbent holds a first-class degree from Cambridge University, and a PhD from Harvard. An assistant professor at Columbia University he comes from Goldman and has previously worked both for the Treasury and the Bank of England. According to the FT he gets £131,771/yr – somewhat less than a Goldman M.D. one would imagine.
Europe remains binary & as such headline driven:
“The Greeks have to bring to Parliament their austerity measures and their privatization package and they have to implement those measures,” Luxembourg Finance Minister Luc Frieden told Bloomberg Television at a euro crisis meeting in Luxembourg today. “Only if those conditions are fulfilled, we can pay out the next tranche and at the same time look for a possible second program to support Greece.”
Der Spiegel staff think it is “Time for Plan B”:
In the past 14 months, politicians in the euro-zone nations have adopted one bailout package after the next, convening for hectic summit meetings, wrangling over lazy compromises and building up risks of gigantic dimensions. For just as long, they have been avoiding an important conclusion, namely that things cannot continue this way. The old euro no longer exists in its intended form, and the European Monetary Union isn’t working. We need a Plan B…..
“Heart of the Euro Problem Is Europe’s Indecision”
With Greece on the precipice of default, euro-zone leaders have delayed the release of a critical tranche of aid. But the failure to agree on how to tackle the Greece crisis threatens both EU credibility and the monetary union…
Forbesʼ “Europeʼs Fate Hangs From A Thread Ahead Of Greek Confidence Vote”
The Economissed is produced by Paul Wiggins head of Futures & Options at Market Securities in London.
Charts courtesy of Bloomberg.
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