Monthly Archives: September 2012

The MorningSnapshot- 09/13

The euro rose +0.35% to a four-month high and stocks rallied for a second day after a German court allowed the ratification of Europe’s long-term bailout fund the ESM, and as investors awaited today’s Federal Reserve policy decision. The S&P 500 rose 0.21% while the Euro Stoxx 50 climbed +0.28%; the VIX fell for the first time in three days by -3.7%. U.S. 10yr Treasury note yields rose to a three-week high as the U.S. sold $21B in debt while investors speculate the Fed will add more stimulus at the conclusion of its two-day policy meeting tomorrow.

Morning Commentary
The dollar has weakened to a seven-month low versus the Yen and Treasuries rose amid speculation the Fed will announce new stimulus measures today. Euro-area stocks dropped from a 14-month high with the Euro Stoxx 50 down -0.74%, led lower by Spanish and Italian equities.

The Fed is expected to announce a third round of quantitative easing, according to almost two thirds of economists in a Bloomberg survey, and is even more likely to extend the duration of its zero-interest-rate policy into 2015. “Markets are slightly nervous in anticipation of quantitative easing,” Lim Say Boon, chief investment officer at DBS Private Bank, said on Bloomberg Television in Singapore. “If we get QE3 then the markets, beyond this period of nervousness, are likely to rally even further.”

PIMCO’s Bill Gross Cuts Treasury Holdings to Lowest Level Since October
Bill Gross, manager of the world’s largest bond fund, reduced his holdings of U.S. Treasuries to the lowest since October while warning that more stimulus from the Fed will lead to a resurgence of inflation. Gross cut the proportion of U.S. sovereign debt in PIMCO’s $272B Total Return Fund to 21% of assets in August, from 33% in the previous month. “QEs lower real interest rates and raise nominal rates because their intent is to reflate,” Gross wrote in a Twitter post earlier today, referencing the two rounds of bond purchases conducted by the Fed since 2008 to keep borrowing rates low that have become known as quantitative easing.

The MorningSnapshot- 09/12

Sentiment is strong this morning after Germany’s top constitutional court backed the ESM with a liability cap of €190B. The euro strengthened to a four-month high, European stocks advanced for a second day, and benchmark German bunds fell. The U.S. Federal Reserve begins a two-day meeting today amid speculation policymakers will provide more stimulus, and euro-area finance ministers are set to start meetings in Cyprus on Sept. 14. The court decision is “one nagging issue that’s out of the way and means the focus is now going to be on the Eurogroup meeting,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “It will mildly support risk.” The liability cap “will not prevent the ESM from going ahead which is critical,” he said.