FOMC Disappoints Again, QE Tapering Is A Dilemma

FOMC Disappoints Again, QE Tapering Is A Dilemma

The most important event of the day was by far the publishing of the FOMC meeting minutes. Investors were waiting for details regarding Quantitative Easing. Fed’s Evans, Fisher or Pianalto are expecting a tapering of the QE on September, especially if the economic data would signal an economic recovery of the US.

On these meeting minutes the officials agreed on the fact that the QE should be tapered this year, but it was nothing said about September. So even though investors did not get a clear point in time when the QE will be reduced, they understood that the good economic data may lead to a modification of the program this year.

The indexes, Dow Jones Industrial, S&P500 and others continued their down move. This reaction was also seen in the EURUSD quotation. After hitting 1.3450 the price of this currency pair dropped back around 1.3350 signaling that EURUSD is not yet prepared for a rally above 1.34.

EURUSD, Daily

Chart: EURUSD, Daily

From the technical point of view a Dark Cloud Cover can be seen on the candlestick chart at 1.34. This is a bearish signal which could result in a drop back to 1.33 or even 1.32 till the end of this week. The only positive signal would be a daily close above 1.34.

 

The Eurozone PMIs Are Indicating A Recovery

The Eurozone PMIs Are Indicating A Recovery

Today, the Eurozone’s PMI indices were released. PMI means Purchasing Managers’ Index and is the best communicator of the economic climate for the concerned area. Even if it represents a survey of managers working in the manufacturing industry, it tends to represent the whole economy. Why? Because the manufacturing industry is an important segment of any economy which is able to indicate in advance if the economy is going in a good direction or it tends to slow. When calculating this index, five sub-indexes are considered: new orders, inventory levels, production, supplier deliveries and the employment environment. To simplify the understanding of this indicator, you just have to take as a mark the 50.0 level. Above it indicates that the industry is expanding and below it indicates a contraction of the industry.

Back to the news today, the Eurozone reflects a real improvement, reporting levels of the PMI indices that were last met in the middle of 2011. Even if French was the only one who missed the expectations (49.7), indicating a slight contraction, Germany, the European engine, beat expectations (52), as well as the index reflecting the manufacturing industry for the whole Eurozone (51.3).

The world’s economy seems to recover, slowly, as positive signals from the U.S., Europe and China are becomes increasingly evident. On the other hand, should be considered the fact that this recovery is due to be accomplished in the long term and meanwhile important obstacles may occur. Recent data improved the outlook for the biggest economies but put some pressure on the emerging markets as investors are shifting towards the largest economies.

 

Tapering QE3 Challenges The Whole World

Tapering QE3 Challenges The Whole World

As the time of modifying the Quantitative Easing program is nearing, the possible effects started to be analyzed. Jackson Hole Symposium was the main event of the last days as central bankers, finance ministers, academics, and financial market participants from all over the world gathered to discuss the most important issues of the actual economic situation. Even if the man with the answers (Ben Bernanke) missed this event, other important persons came to draw a warning signal. Thereby, we can list Christine Lagarde, Janet L. Yellen and Haruhiko Kuroda.

Another worry that was added to the existing basket of problems is the way that QE3 influences countries from around the world. In the context of tapering this program, emerging markets could be affected. It’s true that the countries that have supported unconventional monetary policies have also been able to maintain a balanced economic climate and financial stability, and the whole system get used with this pulse, but stopping a program that calmed an entire world, may stir things up. This is what Christine Lagarde suggested and tried to draw the attention on the necessity to find the best way to make this change. On one side U.S. is doing well, making its economy to go more fast offers it the power to interrupt this program, while emerging countries have to deal with these circumstances and find solutions to face new challenging conditions.

Somehow or other, the “September moment” was also confirmed by Jackson Hole Symposium. Ben Bernanke wants to see its job finished until he ends its mandate and the current economic conditions seem to offer him the right moment to end his plan. On the other side of the ocean, the Europe and Japan may still enjoy the ultra-easy monetary policies they have already integrated so far.

Political, Religious And Economical Problems Invade Syria

Political, Religious And Economical Problems Invade Syria

These days we are attacked by a lot of news about the conflicts in Syria. Of course, the United States of America are this time, again, one of the main characters. Is it new, this whole situation of conflict?

Let’s go to the roots…

Syria is a small country in the Western Asia. Not rich, but enjoining its fertile plains and geographical diversity from high mountains to deserts, it had (or not) the opportunity to be the birthplace for many population, such as: Armenians, Turks, Kurds, Assyrians and some other more. Of course, the religious diversity is also a characteristic of the country: Christians, Muslims, Druze, Alawite Shias or Arab Sunnis are sharing the territory.

Which is the main cause of conflict in the area? The response is simple: behind any political reasons pretended by the elites or economical reasons claimed by the whole world but denied by the US, there is religion. We are not going to enter into details regarding each and every Islamic branch (Sunnites, Shiites, extremists, fanatics, or simply opponents of something) but we want to emphasize the fact that nowadays we are made to believe that a new world war can break out because of some civil wars, ethnic and religious misunderstandings; and that a quick intervention of external military powers will finally (God knows when) be able to re-establish peace in the area. But the interests are hidden behind clichés like “world peace” or “fight against terrorism”.

From ancient times, Syria has both Christian and Islamic history. Under the Islamic rulers, starting in the 7th century, the country passed through totalitarian political regimes, revolutions, oppressions, Crusades (Christian missions due to liberate the Holy Lands) and massacres. Later on, in the 16th century it was invaded by the Ottoman Empire and incorporated into it, period that brought peace because of system adopted by the ottoman administration. However, a peaceful coexistence between so various nations and religions is hard to be maintained, given the concept of Holly War (Jihad) that is misunderstood and misinterpreted by extremist groups, and other practices derived from the Islamic teachings of Koran. After World War I Syria was put under a French mandate, which lead to new conflicts between Sultan al-Atrash and French administration. Since its independence in 1936 Syria always tried to keep close the local allies, struggling to face internal conflicts.Syria-oil-ressources

hidden interests

Why is the West involved in all these ethnic and religious conflicts? It has always been like that, because in this world there are hidden interests, strategic views, unknown distribution of the natural resources of the planet, between the so called powerful countries, and hidden purposes of solving as old as mankind conflicts. After World War 2, Arab countries become more and more interesting for the Western powers, such as US and UK. However, Syria kept close some powerful traditional allies like Russia, Venezuela, China and Iran, which have supported the Syrian government during the civil war.

The fact that the US, closely sustained by the UK and France, are trying these days to bring peace by making war in the area is a nonsense. The Jihad is defined in the Koran as being both internal and external struggle of the Muslim to be in peace with God, to preach God’s word and Muhammad’s teachings. The so called Terrorism, against which US and its allies are fighting, is not a product of the Islamic religion, but their own propaganda product behind which they cover untold purposes of dominating the world. How could the US dominate the world is they did not dominate world’s natural resources…?

In other words, Syria is just a new victim of the US struggle to dominate the world, economically speaking, whose internal, older than the US history conflicts are not going to be resolved by a quick or slow intervention of the Western- bringing- peace countries.

Mark Carney Believes In United Kingdom

Mark Carney Believes In United Kingdom

United Kingdom is barely keeping its worrisome economic situation under control. The unfavorable conditions given by the worldwide difficulties are making the U.K. recovery more difficult to be accomplished. If China, Australia and United States are growing at a relatively good pace, U.K. still produces 3%, less than it did five years ago, mainly because of the poor situation of the Euro zone. Looking at various sectors of the economy, traces of a hard struggle to resist to the recession are visible: 7.8% jobless rate as well as a significant breakdown of the business climate.

As current measures that are considered in order to deal with this situation, we can enumerate:

  • Keeping the interest rate at 0.50% until the labour market will significantly improve (means falling below the threshold of 7% jobless rate in order to start speaking about a possible decision in the interest rate’s value);
  • Rebuilding the confidence imagine of the bank in order to be able to better serve the economy with credits (capital ratios need to reach a threshold of 7%);

British officials are very much confident in the forward guidance and the set of rules that has been established so far. Approaching the situation in a realistic manner, U.K. is expected to recover in a slow pace, being required another 2 or 3 years before breathing easy. The inflation is thought to be kept under control and is expected to get to normal parameters by evolving in a natural rhythm. Strong assurance came from the Governor Mark Carney who is willing to take any action, including adding stimulus, if the situation requires it.

 

United States Closer To Taper QE3

United States Closer To Taper QE3

Due to exports, the trade balanced managed to reduce by 0.8% and the American GDP grew by 2.5% from the last quarter’s report of 1.7% improvement. The most important fields of the U.S. economy, the labor market and the housing market, are showing a recovery, making the FOMC’s decision on September more evident. The unemployment claims (331k) are still on a descending trend, even if not far from the last release. Today the U.S. dollar appreciated against euro, as the economy proved to remain on track.

Also today, Federal Reserve Bank of Richmond President Jeffrey Lacker emphasized the idea that central banks from all over the world will be defined by their power as lenders. Although lending should be wisely spread over the sectors of the economy, central banks should also be careful not to use this tool incorrectly (currently, in order to maintained the financial stability, central banks are entitle to use all tools they have in their portfolio). As it concerns the future presidency of Fed, Janet Yellen seems to remain the favorite candidate to replace Ben Bernanke in January, after winning the backing of U.S. labor leaders. She is known as a supporter of the current QE program. Chances are that the monetary stimulus will stay in place, or at least will be an available alternative, until the labor market will recover completely.

 

No Measure Is Taken Against Syria

No Measure Is Taken Against Syria

Even if the guilty of the President Bashar al-Assad’s attack was proved (because deadly sarin gas was used), the countries that got involved in this matter so far, now have remained motionless. “The red line” was removed by the man who imposed it in the first place. In the present case we are speaking about U.S. whose president Barak Obama doesn’t want to take any decision involving military force without consulting with the Congress. The decision-making process in this situation may be a long and complicated one. Also France and United Kingdom joined the same idea, seeing themselves unable to take proper measures in this situation. Faced with this case, the Arabic world takes the chance to show their fearless and strength. During a meeting with Iranian official, the president of Syria talked about the capacity of his country to face any external attack, indirectly threatening any possible formation of a coalition against them.

This “historical retreat” of the U.S. means one step back due to fear or due to the need of time in order to get prepared for a serious intervention? Or it was all about proving that the U.S. are able to action in this matter, resulting in an appreciation of the American dollar which benefited as an importing country? In any case, considering the U.S.’s economic situation, getting ready to taper the QE program, the majority of the democrats may choose to keep their states away from such a demanding and expensive event. The country’s leadership decided to wait a bit to see how things are evolving and what other reactions may be evoked.

The first reaction that occurred is Saudi Arabia’s ask for intervention in Syria in order to stop any possible violent events. This may be the beginning of the global consensus for stopping the civil war that Syria holds at present and which had been killing over 100.000 people in the past two and a half years. We have reasons to believe that Obama’s intention to delay any final decision is due to force forming a global consensus that would have the power by its size to fight Syria.

What Did FOMC Decide?

What Did FOMC Decide

FOMC announced to keep the interest rate at 0.25% and not much information about the QE3. The program is maintained at the previous parameters with no given data for an eventual tapering. On the other side, the inflation becomes an alarming issue as “persistently below its 2% objective could pose risks to economic performance”. In this regard, and taking in consideration the continuation of the monetary stimulus program, economists are expecting the core inflation to rich 2% in the medium term.

Earlier today, good news came for the American economy, as signs of recovery appear to become increasingly more consistent. The ADP report came up better than expected (200k), possibly giving the tone to the NFP that is waited on Friday. Broadly, this result is sustained by the services sector which created 177k jobs, the biggest gain since last November. The labour market demonstrated the fact that the turbulences given by the cuts in government spendings, fiscal issues and tax increases were safely overcome. The advanced GDP release (1.7%), the version that tends to have the most of the impact, showed that the worse of the financial problems are being left behind.

 

Much Ado About Nothing

Much Ado About Nothing

Today Mario Draghi had to fight with the same rush of the investors that Ben Bernanke encountered yesterday. Everybody was interested in any major change that could happen in the short term, like the possibility of modifying the interest rate. As just last month was announced that they would maintained the low interest rate for an “extended period of time” it’s logical that no important changes were expected today, especially because the economy didn’t report major changes (like the inflation exceeding the 2% threshold). To sum up, a trace of optimism was kept, as the economy is expected to recover at a slow pace.

The U.S. data maintained the optimism of the last days as the ISM Manufacturing Index achieved a rating of 55.4 points (as last month got 50.9 points). The manufacturing industry is gaining momentum and pledges to sustain further positive numbers for the indicators of the labour market. Speaking about the labour market, this month were registered fewer unemployment claims (326k), value that reaches a minimum level of May 2013. Likewise, an extra vote was added for the QE3 tapering that is due to happen in September. Gold price is likely to remain in the last 2 weeks’ range at least until a final decision is taken regarding the moment of taper of the monetary stimulus program.

The Australian Dollar, On The Right Path?

The Australian Dollar, On The Right Path

Today, the Australian dollar was one of the top movers as the Central Bank decided to cut again the interest rate, reducing it to an historical low, at 2.5%. Even if this decision makes the Aussie dollar depreciate and therefore makes it less attractive for the investors, it is intended to help the economy get back to growth. Lately, Australians have had a less encouraging economic climate as the country’s economy kept deteriorating. One of the major concerns is the growing unemployment rate which pointed to 5.7% as well as a serious breakdown of the mining industry.

As two of the core industries are the coal and iron ore, a slowdown of one of them is seriously affecting the overall picture. China is at fault for these negative news, as its economy is cooling. If previously they used to invest significant amounts of money in their infrastructure and building factories, increasing the demand of natural resources from Australia, now, the leaders of China would rather not to boost the economy for a while. The slowing down of the mining industry is expected to cause further damages like: increasing the unemployment rate, reducing the investments, affecting the exports and the price of these resources. On the medium term (until the final of 2013), the Australian economy will be closely watched before additional measures will be taken, as they are not excluded.