Janet Yellen’s nomination, to replace Ben Bernake in January 2014, calms and distracts markets from the ongoing debt ceiling crisis…
The DJIA index appeared to briefly escape the clutches and stranglehold of the debt ceiling crisis on Wednesday. The Whitehouse, getting back to the normal business of nominating (or more likely announcing ) Janet Yellen to the position of Chairman of The Fed, appeared to both add an aura of calm and perhaps a ‘healthy’ distraction for the markets.
Yellen is thought to be cut from the same cloth as her boss Bernake, therefore the markets expect her to maintain the ‘dovish’ attitude towards the current programme of monetary easing. The reason we mention “nominating” versus Obama appointing Yellen is more than semantics; the Fed is a private company run by and for the major investment banks in the USA. Its position as a pure central bank is a moot point and as such makes it one of the most curious central banks in existence. Despite the fact that Yellen’s nomination has to be ratified by the various apparatus of USA govt., her appointment has no doubt already been agreed by her backers and the powers who she’ll really be answerable to.
The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s;
“Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”
The DJIA finally closed up 0.16% on the day, having at one point entered into negative territory shortly after the markets opened. However, the markets, investors and analysts can’t escape the reality that another day has passed as we agonizingly creep towards the ‘D’ – day of October 17th, which USA treasury chief Jacob Lew still has pencilled in as the day the USA effectively runs out of cash and technically enters into default on many of its obligations.
Whilst on the subject of Yellen and the smooth handover of the poisoned chalice of $85 billion a month in monetary easing, the IMF brought up the subject during one of their meetings on Wednesday. The International Monetary Fund has warned that investors risk losing trillions of dollars if central bankers, such as Janet Yellen, mishandle the task of unwinding their emergency measures. In its latest Global Financial Stability Report, the IMF estimate that losses could reach $2.3trn if ending quantitative easing is mishandled.
“QE has left central bankers holding huge quantities of sovereign debt (the Bank of England has £375bn of UK gilts). The Fund reckons that, if investors are spooked by the unwinding process, interest rates on sovereign debt could spike rapidly by one percentage point, wiping $2.3trn off the value of bond portfolios.”
The IMF also called on Europe to implement banking union, before investors lose faith in the region’s banks. Banking union would create a single agency with the power to rescue a struggling eurozone bank, or close a failing one. In another key recommendation from the Global Financial Stability Report, the IMF said:
“Investors’ faith in euro-area bank balance sheets must be restored and banking union completed. Otherwise, the euro area risks entering a lengthy, chronic phase of low growth and balance sheet strains.“
Market overview
The DJIA index closed up 0.18%, the SPX up 0.06% with the NASDAQ not entering into the improved sentiment by closing down 0.46%. European markets closed mainly in the red; STOXX index closing up 0.05%, FTSE down by 0.44%, CAC down 0.16%, DAX down 0.46%. The IBEX closed up 1.29% and the MIB up 0.97%.
Commodities were hit hard in Wednesday’s trading sessions; ICE WTI oil closing down 2.05% at $101.37 per barrel, NYMEX natural down 1.00% at $3.68 per therm. COMEX gold closed the day down 1.31%, silver down 2.46% at $21.89 per ounce.
Looking towards equity index futures the DJIA is currently printing up 0.10%, SPX down 0.10% and the NASDAQ down 0.58%. European indices are mixed, DAX down 0.74%, FTSE down 0.69%, CAC down 0.17%. The IBEX 35 equity index future is up 1.08% and the MIB equity index future is up 0.94%.
Forex focus
The U.S. Dollar Index added 0.3 percent to 1,013.22 late in New York rising as much as 0.6 percent, the biggest intraday advance seen since Sept. 5th. It closed on Oct. 3rd at 1,007.87, the lowest level since since Feb. 20th.
The greenback gained 0.5 percent to 97.34 yen and rose as much as 0.8 percent, the most since Sept. 19th on an intraday basis. The dollar appreciated by 0.4 percent to $1.3524 per euro and touched $1.3486, the strongest level seen since Sept. 30th. Europe’s shared currency rose 0.1 percent to 131.65 yen.
The JPMorgan Global FX Volatility Index rose to 8.84 percent after falling on Tuesday to as low as 8.68 percent, the least level seen since May 9th. The 2013 average is 9.37 percent.
The Australian dollar gained versus most of its major peers on estimates that a report overnight that will show payrolls climbed last month by the most in five months, while the unemployment rate remained at a four-year high of 5.8 percent. The Aussie rose as much as 0.4 percent to 94.64 U.S. cents before trading at 94.45 U.S. cents, up 0.2 percent.
Sterling lost 0.8 percent to $1.5954 and touched $1.5916, the weakest since Sept. 18th. It dropped 0.5 percent to 84.77 pence per euro and touched 84.87, the weakest since Sept. 3rd.
High impact news events that could affect market sentiment on October 10th
It’s a foregone conclusion that the UK BoE MPC will keep its asset purchase facility at £375 bn and that the interest rate will remain at 0.5%, if not then Mark Carney’s commitment to forward guidance will be rendered hollow. A statement from Carney will follow the rate setting and policy announcement.
USA unemployment claims are published on Thursday, the prediction is for the print to come in at 307K, however, we’re still to learn if the states of California and Nevada are fully back on line, or if the numbers are devoid of errors or content due to the partial govt. shutdown over the past week.
The FOMC member Bullard speaks in the afternoon session, once again focus may return to the discussion of tapering,particularly in light of the nomination of Yellen to be next Chairman of the Fed. ECB president Mario Draghi will also hold court after the ECB monthly bulletin is published. It reveals the statistical data that the ECB Governing Board evaluated when making the latest interest rate decision, and provides detailed analysis of current and future economic conditions from the bank’s viewpoint.
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