The Great Debate UK
Ben Bernanke could teach the EU a thing or two
By Kathleen Brooks. The opinions expressed are her own.
Markets thrive on certainty. Anything that smacks of uncertainty, fence-sitting or indecision will lead to market turbulence, as investors punish those who don’t tell them how it is.
This is exactly what we are seeing in Europe right now. The markets are losing patience with the EU’s inability to come up with a credible plan to fight the sovereign debt crisis and that is why it is escalating at an alarming rate.
In general, investors in credit markets are a canny bunch. Bond spreads between Germany and Greece, Ireland, Portugal, Spain and Italy have already blown out, but in recent days spreads between Germany and France, Belgium and even Austria have increased to their widest level for more than two years.
So what does this all mean? In short it suggests that bond investors are going off Europe, even those members who were previously considered safe are no longer out of harm’s way. The credit markets are turning against the political make-up of the currency bloc and until concrete changes are made to the structure of the euro zone the pressure on European credit markets is unlikely to abate.
Bernanke steps up to scrutiny
-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-
While ECB head Jean Claude Trichet is nearing his final post-policy decision press conferences – he retires in October – on the 27 April the Fed’s Ben Bernanke will be stepping up to the podium for his first.
Did the Fed catastrophically mis-time QE2?
The sternest criticism of QE2 is the way it pumped up asset prices like commodities in recent months without making much of an impact on U.S. economic growth. Rising fuel and food costs have weighed on inflation everywhere from emerging markets to the UK. But this criticism might step up a gear if Middle East tensions lead to a spike in oil prices and the Fed tries to protect growth using a similarly blunt tool as QE2.
The political crisis in the Middle East has been the game-changer for the global economic outlook in the past couple of weeks. In just five days WTI oil (U.S. crude) jumped $10, and Brent (European oil) surged to within touching distance of $120 per barrel. This showed us what fear is like: since the 1970’s each recession has been preceded by an oil price shock. You don’t need much more evidence than this to see the extremely close relationship between oil and growth especially in the U.S., the largest consumer of crude in the world.
What if the U.S. labour market never returns to “normal”?
-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-
While the investment community trudged through the snow-fogged January labour market report, the only glimmer of hope was the fall in the unemployment rate to 9 per cent from 9.4 per cent in December. But while investors grabbed that as a sign that the economic recovery in the U.S. was back on track, the data is unlikely to have cheered Federal Reserve chief Ben Bernanke.
Has QE2 worked?
– Kathleen Brooks is research director at forex.com. The opinions expressed are her own. –
Ever since the U.S. Central Bank formally announced its second round of quantitative easing back in November, bond yields have trended higher. Ten-year Treasury yields have jumped by 100 basis points and are back at levels last reached in May 2010. Higher yields underpinned the dollar, which has risen by more than 5 percent over the same time period. So what does this tell us about the market, and has the Fed’s grand plan actually backfired?
from Breakingviews:
Fed’s data dump holds important lessons for Europe
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
The Federal Reserve on Wednesday finally published details of the institutions that clamored for its funds during the financial crisis. It's hardly surprising that troubled banks like Bank of America, Merrill Lynch and Citigroup topped the charts for banks that lined up for federal money. But the disclosure illustrates the scope of the U.S. central bank's measures to keep the financial system on life support. The scale of emergency lending -- $3.3 trillion at its peak -- could hold important lessons for Europe, too.
from Breakingviews:
Fed misses a transparency trick with stress tests
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The newly powerful Federal Reserve may have missed a trick. The U.S. central bank, charged under the Dodd-Frank reform bill with broad oversight of the banking system, is asking the 19 biggest American financial institutions to submit to a series of stress tests. That's a good thing. The trouble is the regulator plans to keep the results and the criteria used in the tests private.
from MacroScope:
Primary dealers driving the printing presses
The U.S. Federal Reserve’s hotly-contested $600 billion renewal of its quantitative easing programme is roughly the size of the Gross Domestic Product of Switzerland.
Expectations by forecasters in Reuters Polls on how much more bond purchases the Fed will conduct beyond the $1.7 trillion already conducted varied widely running up to the Fed's announcement that it would go ahead with QE2.
from The Great Debate:
Bernanke’s high stakes poker game at the G-20
By Peter Navarro
The opinions expressed are his own.
Ben Bernanke is about to play the biggest poker hand in global monetary policy history: The Federal Reserve chairman is trying to force China to fold on its fixed dollar-yuan currency peg. This is high-stakes poker.
Although Bernanke will not be sitting at the table to play his quantitative easing card when all the members of the G-20, including China, meet this week in South Korea. Every G-20 country is suffering from an already grossly under-valued yuan pegged to a dollar now falling rapidly under the weight of Bernanke’s QE2. In fact, breaking the highly corrosive dollar-yuan peg is the most important step the G-20 can take for both robust global economic recovery and financial market stability.
When is it the Fed’s cue to leave?
The Federal Reserve’s second round of quantitative easing to the tune of $600bn put a firework under a trend that started back in August when Fed Governor Ben Bernanke first touted the idea of providing more monetary policy support to the US economy. Risky assets are in demand and the market is happy to sell dollars.
After digesting the Fed’s statement released after its meeting, investors aren’t willing to stand in the Fed’s way as it keeps its hand on the monetary policy trigger: “The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.”
