Fed sees QE ending in October

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According to June's meeting minutes, released last week, the Fed is expected to end the third round of the quantitative easing in October, should the economy evolve as the Federal Open Market Committee members anticipate. Following a prolonged period in which the Fed has purchased 85 billion Dollars’ worth of assets every month, the Fed's expectation for the end of easing is an historical landmark in U.S. monetary history. With this forward guidance clearly paved, the minutes addressed FOMC members' view of the U.S. and global economy, and the way that translates to future policy.

Among the factors the Fed members' had in mind, it was noted that consumer spending had been supported by household net worth rather than income gains. One plausible explanation would argue that this increase in household net worth is backed by the aforementioned easing, leading to inflating asset prices. On the other side of the equation, the fact that income gains were held back might be the result of this monetary easing not trickling down to the real economy, leading to an increase at the labor markets' demand side. Regarding this, Fed members express a view by which a pickup in income would be the one to support a sustained income in consumer spending. Undoubtedly, welfare effects do not last forever.

Committee members' view of the economy as recovering in some aspects, yet still problematic in others naturally translated to ambiguity regarding the way those members see the federal funds rate, in the future. Among these issues, most participants were said to expect the federal funds rate to remain below their long term objectives at the end of 2016. Half of these participants associated the low level of the federal funds rate with insufficient inflation. Other participants expressed concern of a combination consisting, inter alia, of "lower equilibrium real interest rate, continuing headwinds from the financial crisis and subsequent recession". As Yellen said once, monetary policy is not a panacea. Recently, it also needs to cope with growing resilience by the problems it wishes to solve, as well growing side effect. 

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Economic events of this week

Monday: The Rightmove National Asking Price indicator will be published in the U.K, after surging by 2.6% last month. March’s Machine Orders data will be published in Japan, after those presented a 10.8% annual growth, in the latest figure. Tuesday: The All Industry Activity Index is due in Japan. Analysts expect last month’s 1.1% decrease reverting to a 1.6% increase. April’s Consumer Price Index is due to be released in the U.K. Analysts expect it to continue indicating a below, but close to 2% annual inflation. The Producer Price Index will also be released in the U.K., but analysts see that presenting milder figures. Wednesday: The day will see the BoJ issue a monetary policy statement, followed by Governor Kuroda holding a press conference. Retail Sales data will be released in the U.K. This will be followed by the Eurozone’s Consumer Confidence Index. In the U.S., the Fed will release minutes from April’s meeting. Thursday: The Markit Manufacturing Purchasing Managers’ Index will be published in Japan. China will see the GSBC Manufacturing Purchasing Managers’ Index published. The day will also see PMIs published throughout the Eurozone, namely France, Germany and the Eurozone Aggregate. The U.K will see a preliminary estimation of the first quarter’s GDP being published. In the U.S., the weekly Initial Jobless Claims will be published, after dropping below the critical level of 300K (see above). Further in the U.S., May’s Markit Purchasing Managers’ Index will be published, analysts expect it to increase even higher, from a previous print of 55.4. Also due are Existing Home Sales and the Leading Index. Friday: The day will kick off with the publishing of Germany’s final estimation of the first quarters’ GDP. This will be followed with the IFO Business Survey. In the U.S., April’s New Home Sales figure will be published. Start Trading HERE!

Economic events of the week

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Monday: More info on the recovery of the Eurozone will roll in as Industrial Production data will be released in Italy. Additionally, the U.S. budget statement for December is due to be released.

Tuesday: The Current Account Balance is due to be released in Japan, with analysts expecting the deficit to increase to over Yen -368 billion. The French Consumer Price Index is due, as well as the U.K. Consumer, Producer and Price Indices. December’s U.S. Advance Retail Sales will also see light during the day. 

Wednesday: Preliminary figures regarding Machine Tool Orders are due to be released in Japan. Later that day, Consumer Price Index data are due to be released in Spain. In the U.S., December’s Producer Prices are due to be released.

Thursday: The day will kick off with a slew of reports from Japan, namely the Tertiary Industry Index, Machine Orders and Domestic Corporate Goods Prices. Later that day, December’s Consumer Price Index will be released in Germany, followed by the aggregate figure for the Eurozone and coincidently, the U.S. CPI. Further expected in the U.S. are the Initial Jobless Claims figures. Fed Governor Bernanke is due to deliver a speech at the Brooking Institution. 

Friday: December’s Housing Starts and Industrial Production data will be released in the U.S., followed by the University of Michigan’s Consumer Confidence Index for January. 

More signs of recovery

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The EUR/USD rate was not the only financial asset to set new records last week. On Friday, the U.S. 10-year yields finally surpassed the 3% landmark. This is quite a latent, but not entirely unexpected reaction to the previous week’s tapering. In spite of the 10 year yields already surpassing 3% in September 2013, that case is mostly attributed to volatile anticipation for tapering, but this time the tapering is a solid, given fact. The U.S. 10 year yield serves as a benchmark for numerous interest rates. These range from those affecting the real-estate market, such as mortgages, to those fueling equities such as corporate bonds. The low corporate bond interest rates have been regarded as catalysts of soaring equity prices lately. These led to the S&P 500 rising by nearly 30% since the beginning of the year. Likewise, the low mortgage rates in the U.S. may be regarded as primary contributors to the FHFA U.S. House Price Index recording an 8.2% annual increase in October. The affect higher U.S. Government bond yields would have on U.S. assets such as equities and real estate remains to be seen. Register at ANYOPTION and start trading TODAY!

Economic events of the week

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Monday: In Japan, the Tankan Large Enterprises All Industries Index will be released. In France, preliminary figures for the Purchasing Managers’ Indices in the Manufacturing and Services sectors will be released. Later that day, similar Purchasing Managers’ data will be published for Germany and the Eurozone’s aggregate. In the U.S., Empire Manufacturing Survey will shed some light on how manufacturing executives in the state of New York see the future of the economy. Additionally, U.S. November Industrial Production data will be published, while analysts currently estimate these to revert to positive territory, following last month’s -0.1% decline.

Tuesday: Producer Prices will be published in the U.K., followed by Consumer Prices, both are expected to present moderate to negative figures. German Industry will later take the focus with the publishing of the ZEW surveys, both “expectations” and “current situation”. The Eurozone’s aggregate CPI will also see light, but these are not expected to draw the most market attention, as it follows a previous annual figure indicating only a 0.9% increase. U.S. Consumer Prices and Current Account balance are due to conclude the day.

Wednesday: The day will kick off with Japan releasing its trade balance figures, which may cause some volatility in the USD/JPY. Later the day, IFO surveys will be published in Germany: “Business Climate”, “Current Assessment” and “Expectations”. U.K. labor data will see light in the form of Jobless Claims Change and the ILO Unemployment rate. The U.S. will see some housing data in the form of MBA Mortgage Applications, as well as Housing Starts. Later that day, the Fed is due to release its FOMC rate decision, that will hopefully provide some forward guidance on the future of its monetary policy.

Thursday: The All Industry Activity Index will be released in Japan. This will be followed by some Retails Sales data in the U.K. and then the U.S. Initial Jobless Claims, in hope of recovering from last week’s negative figure. 

Friday: Eurozone Consumer Confidence Figures are due. 

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