Let’s not get me started on the merits (or lack thereof) of Monetary Easing.
We need real fiscal solutions to help us get back on our feet, not an artificial increase in demand for Treasuries. If QE3/Twist3 take place – how will this benefit average Americans when borrowing costs have remained at historic lows? To get the world’s largest economy growing again we have to fix real structural problems, like the fiscal-cliff we are staring down at the end of this year. We have to create jobs and the housing market has to rebound before we can get consumers to spend the amount of money necessary for a recovery.
What could can more easing possibly accomplish?!
Thursday is the FOMC meeting. If we get more easing (and enough of it) markets will move artificially higher. If we don’t, the bottom will fall out and we’ll retrace the majority of our last bull move up to a four-year high on the S&P 500. I wish I knew what Bernanke’s plan was…
In addition to the FOMC meeting, we have German court rulings out tomorrow that could change the course of the euro-crisis. If they decide Germany will not support the ESM (Europe’s permenant bailout fund), we are in for some serious volatility.
These are some trying times for asset managers. Where do you find yield in this interest rate environment without taking too much risk? Seriously, I’m asking – where is it?!
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The S&P 500 slipped from four-year highs and the euro fell for the first time in four days as Greece struggles to qualify for aid, while copper rose on speculation that policy makers will work to promote growth. The Euro Stoxx 50 closed down -0.4%, the S&P 500 down -0.61%, and the euro traded -0.43% lower versus the USD. This week is very heavy on corporate bond issuances, with as much as $21.15B expected to price on Monday alone, compared to $38B priced last week.
U.S. Rating May Be Cut by Moody’s If Debt-to-GDP Is Not Reduced
America’s top credit rating is in jeopardy after Moody’s, who placed the U.S. on negative outlook in August, said in a statement today that the rating would likely be cut to Aa1 if negotiations fail to produce policies that would reduce the debt-to-GDP ratio. Plans that produce a stabilization and then downward trend in the ratio of the medium term will likely lead to an affirmation of the rating. The U.S. is on course for a so-called fiscal cliff in which the Bush tax cuts are set to expire at the end of this year, while more than $1 trillion of automatic spending reductions are set to take place in January. “The maintenance of the Aaa with a negative outlook into 2014” is unlikely, Moody’s said today in the statement. That outlook would only be extended if a “ ‘fiscal cliff’ actually materialized—which could lead to instability.
Sentiment is mixed as markets are conflicted about Spain’s rejection of outside power dictating budget deficit reduction measures, the German court ruling on the ESM due out tomorrow, and as the FOMC decision looms Thursday. Equities in Europe are mostly modestly to moderately lower, while Asian stocks are mixed with modest changes; the S&P 500 opened slightly higher on the day. U.S. Treasury yields are advancing, with the 10yr up +2.6bps to 1.68% while similar maturity German bunds are down -1.3bps to 1.53%. Spreads between euro-area sovereign debt and German bunds are mixed in modest ranges. The dollar is on the decline, with the euro advancing +0.52% to $1.2825, and commodities are advancing across the board.
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Sentiment took a hit this morning after Greece’s coalition failed to reach a deal on €11.5B of spending cuts, renewing concern that the debt crisis is deepening. The euro is down for the first time in four days before a court in Germany rules Sept. 12 on the nation’s participation in Europe’s permanent bailout fund. “Traders are shaving their positions at the start of a week where we have quite a number of hurdles,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “There’s a lot for the market to absorb and traders, having seen the euro climb quite rapidly over the past few trading sessions, are just being a little careful.” Sovereign debt spreads to German bunds in Europe are modestly to significantly higher, led by Greece, Portugal, and Italy.
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