Il Primo Ministro greco Lucas Papademos riceve l'approvazione del governo su tagli al bilancio che corrispondono al 7% del Pil nei prossimi tre anni e su una ristrutturazione finalizzata a ridurre di €100 mld gli oltre €200 mld di debito detenuto dai creditori privati, atteso il voto del parlamento • Standard & Poor's declassa il merito creditizio di 34 banche italiane tra cui UniCredit a BBB+ da A, Intesa Sanpaolo a BBB+ da A e Banca Monte dei Paschi di Siena a BBB da BBB+, S&P anticipa "una redditività decisamente debole per le banche italiane nei prossimi anni" • La produzione industriale italiana aumenta a dicembre +1,4% da novembre +0,3%, oltre le stime degli economisti +0,5%, anche se i dati del quarto trimestre -2,1% suggeriscono che la terza economia della zona euro è entrata nella seconda recessione dal 2009 • I Btp decennali salgono per la quinta settimana consecutiva, il periodo di recupero più lungo in oltre cinque anni, la prossima settimana il Tesoro vende €4 mld di buoni al 6% con scadenza 2014 • L'euro cala dal massimo di due mesi contro il dollaro, il mercato azionario europeo cala dal massimo di sei settimane e l'azionario Usa registra la prima settimana di perdite del 2012 dopo che i ministri delle finanze europee non hanno concesso il pacchetto di aiuto necessario a prevenire il collasso economico della Grecia

martedì 4 settembre 2012

Market Comment - September 4

(Marco Bonelli) Who cares about Jackson Hole anyway ...?

...with Mario Draghi and his ECB preparing to unleash a genius, vicious attack against all the problems in Europe nobody was able to solve during the last three years...? ...a move that will dwarf any previous action from the Fed, therefore it doesn't matter if the Fed launches its own genius strike or not.

But wait a moment, why do we even mention whether the Fed makes a move at the next FOMC Meeting next week or not? Didn't Jackson Hole remove all uncertainty and it's already a done deal that QE3 will be announced, especially as the majority of media outlets gave a precise interpretation of Ben Bernanke's speech ("...Bernanke point towards QE3..."; "...Bernanke cements expectations or more policy stimulus..."; "...Bernanke makes case for ...easing...")?

In Friday's speech, for the first time, the Fed Chairman pointed out a few negative effects asset purchases may have. Why would he do so and isn't it coincident that the Dallas Fed's Globalization and Monetary Policy Institute published a comprehensive 45-page working paper that outlined a number of "unintended consequences" of an ultra easy monetary policy? One of Bernanke's points, "more QE may impair functioning of securities market", was almost a copy-paste from the working paper. Another point he mentioned was that "substantial further expansion of [the Fed's] balance sheet may reduce confidence in a smooth exit". Sure he strongly defended the two previous QE actions (he can't say anything different!) and applied his "the Fed will boost accommodation as needed"-phrase (as he has done for almost the entire year) but why would he even mention any negative effects if QE3 was the best thing since the invention of the light bulb? Is it possible that he started managing expectations and with that attached a strong conditionality to any upcoming move (like the economy falls off a cliff or credit markets tighten substantially or the stock market sort of crashes). In this context, he also mentioned that "monetary policy can't replace broader, more balanced economic policies".
Bottom-line, it was all but certain that the Fed will launch QE3 at its next meeting on September 13 and it's even less certain now!

Beside all systematic effect and non-effects, the economic situation will certainly be the main factor to determine any further policy steps. And here could be  the problem: A report from the Economic Cycle Research Institute (ECRI) from August 20 summarized the state of the economy like that: "With recent U.S. economic data showing better-than-expected readings, the markets and consensus are increasingly upbeat about the economic outlook, including a belief that the U.S. economy has dodged a recession. A number of key coincident data, in particular July's payroll job gains, are used to make this case." Does an economy like that really require aggressive accommodation, despite the stagnation in the labor market that Ben Bernanke described as "grave concern"?

As next week's FOMC Meeting is essentially the last chance for a monetary policy move ahead of the election, no QE3 announcement would most likely be a major disappointment and investors might not postpone their high expectation another few months. However, getting back to the introduction, an aggressive move by the ECB (if Mario Draghi is able to walk his talk) could be a soothing second option (short-term speaking), if the pain of disappointment from the Fed gets too overwhelming.

More than last week, the markets remain a puppet-on-a-string to all rumors and comments that contain the word "stimulus" as stocks swiftly reverse any negative performance (Thursday's loss was completely reversed within the first 10 minutes of Friday's trading) and commodities, particularly precious metals and energy continue to show underlying strength. The events from this week and next (including economic data like non-farm payrolls from August), however, might be one of the most important in a long time.

Given the fact that this trader's summer rally has been built on highly questionable and exaggerated hopes and little facts and taking into account possible disappointments from the ECB and/or Fed, profit-taking and reducing risk exposure might prove to be a successful investment decision!

Trade well.

P.S. Whoever is interested in reading the full working paper from the Federal Reserve Bank of Dallas, here is the link:

(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own.)

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