Tuesday, September 25, 2012

Today's Headlines

  • Fed's Plosser Says QE3 Risks Fed Credibility, Won’t Boost Jobs. Federal Reserve Bank of Philadelphia President Charles Plosser said new bond buying announced by the Fed this month probably won’t boost growth or hiring and may jeopardize the central bank’s credibility. “We are unlikely to see much benefit to growth or to employment from further asset purchases,” Plosser said in the text of a speech prepared for delivery today at the reserve bank in Philadelphia. “Conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility.” Economic research indicates that additional asset purchases are “unlikely to reduce long-term interest rates by a significant amount” and that lowering rates “by a few more basis points” won’t spur growth and hiring, said Plosser. “I opposed the Committee’s actions in September because I believe that increasing monetary policy accommodation is neither appropriate nor likely to be effective in the current environment,” Plosser said. “Every monetary policy action has costs and benefits, and my assessment is that the potential costs and risks associated with these actions outweigh the potential meager benefits.The Fed’s “hard-won credibility” is crucial because if the public doesn’t have confidence in policy makers, their ability to set effective monetary policy will be harmed, hurting households and businesses, Plosser said. If people believe the central bank will delay raising rates, they may “infer that the Fed is willing to tolerate considerably higher inflation,” spurring an increase in inflation expectations that would require a response from the FOMC, Plosser said. “The Fed’s most recent actions carry with them significant risks,” Plosser said. “I am not forecasting that those risks will necessarily materialize and I hope they will not. But if they do, they could prove quite costly to the economy.” Richmond Fed President Jeffrey Lacker, who votes on the FOMC this year and was the only policy maker to dissent at the last meeting, said QE3 probably won’t do much to boost the labor market. “This is going to have a greater effect on inflation and a minimal impact on jobs,” Lacker said in a Sept. 15 interview on National Public Radio. Similarly, Richard Fisher of Dallas, who doesn’t vote on monetary policy this year, opposed the third round of purchases, which he said led to an increase in market expectations for higher inflation without more job creation. “I do not see an overall argument for letting inflation rise to levels where we might scare the market,” Fisher said in a Bloomberg Radio interview.
  • Spanish, Italian Bonds Decline After Demand Drops at Debt Sales. Spanish and Italian government bonds fell as demand declined when the two nations sold debt today amid concern the region’s financial turmoil is worsening. Spain’s securities dropped for the first time in three days as Deputy Prime Minister Soraya Saenz de Santamaria said the country needs to know how much the European Central Bank will spend on debt purchases before it decides whether to ask for a bailout. German two-year notes fell as ECB Governing Council member Ewald Nowotny said he doesn’t see a need to cut interest rates at the moment. “Markets are likely to be looking for any indication of a softening in investor appetite, through lower demand or rising yields,” said Brian Barry, an analyst at Investec Bank Plc in London. Rising yields at Spain’s bill sale “could potentially be an indication of the growing sense of unease felt by investors over the protracted bailout saga.” Spain’s two-year yield climbed 13 basis points, or 0.13 percentage point, to 3.16 percent at 4:19 p.m. London time. The 4.75 percent note due in July 2014 dropped 0.23, or 2.30 euros per 1,000-euro ($1,295) face amount, to 102.775. The 10-year yield increased seven basis points to 5.76 percent.
  • Rajoy Defied as Catalan Head Seeking Autonomy Calls Vote. Catalan President Artur Mas called early elections for Nov. 25, defying Spanish Prime Minister Mariano Rajoy in a campaign that will focus attention on the potential for Spain’s biggest region to declare independence. Mas made his announcement to lawmakers in Barcelona five days after Rajoy rejected his bid for greater control of the region’s tax revenue. The Catalan leader, who has sought a 5 billion-euro ($6.5 billion) bailout from Madrid, said last week Rajoy lacked the political courage to forge a deal. The challenge to Rajoy adds to the premier’s woes as he fights to avoid a European bailout that imposes austerity on Spaniards already protesting against the deepest budget cuts on record. Catalonia, where 1.5 million people demonstrated for independence in the capital Barcelona this month, accounts for a fifth of the Spanish economy and is home to some of the nation’s largest companies.
  • Irish Taxpayers Fund Army Bras to Avoid Greek-Style Protests. Paying for military bras, shoes for civil servants and bonuses for handling animal carcasses is the price of industrial peace in Ireland. After reviewing more than 1,100 special allowances for state workers, the government last week abolished one: a travel expense. Among those it kept are the 27.40 euros ($35.80) a year for female soldiers to buy underwear and night attire and 47.92 euros a week for attendants to ensure post is delivered to staff at the Chief State Solicitor’s Office before 9.15 a.m. “The failure to implement further planned cuts in expenditure is a worrying development,” said Conall Mac Coille, an economist at Dublin-based Davy, the largest Irish securities firm. “It is going to be very difficult for the government to pursue the needed cuts without touching pay and services.
  • Iron-Ore Supply to Seaborne Market Seen Rising 15% by Citigroup. Supply of iron ore into the seaborne market will rise 15% in the current half from 2012's first six months as Vale SA and Rio Tinto Group increase production, said Citigroup Inc. Supply will climb to 470 million tons in the first half and 440 million tons a year earlier, Citi Research said. Most of the projected increase stems from a rebound in output at Rio Tinto's mines in Western Australia and expansions by Vale at Carajas and the South Eastern Systems, Citi Research said.
  • Young Adults Flock to Parents' Homes Amid Economy. The Class of 2008, born during the historic bull market that closed the past century, reached a dubious distinction last year: More than a million of the college graduates have gone back home. The number of 26-year-olds living with parents has jumped almost 46 percent since 2007, according to Census Bureau data compiled by the University of Minnesota Population Center. Last year, the number of 18- to 30-year-olds living with their parents grew to 20.7 million, a 3.9 percent gain from 2010. The figures underscore the difficulty that millions of young people have had in finding jobs and starting careers in the U.S.
  • Health-Care Price Rise Poses Challenge for U.S. Overhaul. Medical prices accelerated faster than some projections last year and the number of uninsured is rising, according to data that show the U.S. goal of expanding health care is veering onto a more difficult road. Costs for people with employer-sponsored insurance plans jumped 4.6 percent in 2011, more than the government’s 3.9 percent estimate for the entire health system, the Health Care Cost Institute, which analyzed claims from UnitedHealth Group Inc. (UNH), Aetna Inc. (AET) and Humana Inc. (HUM), said today. A study by the U.S. Centers for Disease Control and Prevention found the number of people without insurance climbed 1.7 percent in the first quarter of 2012. The data pose a challenge for the Obama administration as it carries out the 2010 Affordable Care Act, which promises to expand coverage to 30 million Americans starting in 2014 and trim health costs. The CDC reported that 47.3 million people lacked insurance, and the health institute said hospitals and doctors raised prices at a clip that outstripped demand. “If you don’t bend the cost curve, ultimately insurance gets more expensive,” said Douglas Holtz-Eakin, the president of the American Action Forum, a Washington-based advocacy group that opposes the health law. “It’s a big problem for the Affordable Care Act.” The overhaul law may be contributing to higher costs, said Martin Gaynor, an economics professor at Carnegie Mellon University and chairman of the Washington-based Health Care Cost Institute.
  • Morgan Stanley(MS) Recommends Reducing Junk Bond Holdings. Investors should reduce their holdings of speculative-grade bonds going into the last three months of the year as yields on the notes hover near record lows, according to Morgan Stanley. Risk/reward for the asset class is less attractive today than at any other point this year,” analysts Adam Richmond and Jason Ng wrote in a report dated today. “The main driver of our downgrade is unattractive total return prospects going forward.” 
  • Consumer Confidence in U.S. Rises.
Wall St. Journal:
  • EU Lawmakers Set to Back New Derivatives Rules. European lawmakers are set to agree on new rules Wednesday to tighten regulation over opaque derivatives markets, force delays on high frequency trading and restrict the commissions brokers can accept for selling financial products. The rules, called the Markets in Financial Instruments Directive, aim to create a regulated trading environment for over-the counter derivatives and other off-market financial products. They are part of an effort by nations of the Group of 20 large economies to bring transparency to "dark pools" where financial instruments are traded away from public exchanges.  
  • As Manufacturers’ Costs Tick Up, Hiring Still Muted.
  • The devil in the housing report details. Home prices are rising, experts say, but not as much as one report may suggest. And to maintain a realistic view of any real-estate recovery, it may be wise to err on the conservative side.
Zero Hedge:
Business Insider: 
New York Times:
Financial Times:
  • Scepticism Grows Over 'QE Infinity'. Among the trading rooms and floors of Connecticut and Mayfair, supposedly sophisticated money managers are raising big questions about QE3 – and whether, this time around, the Fed is not risking more than it can deliver. Such scepticism is not easy to maintain. “When I started out in asset management I was told two rules: the trend is your friend and don’t fight the Fed,” says Luke Ellis, who oversees $19.5bn in hedge fund investments at Man Group’s FRM. “For the first time we now have the Fed fighting the trend.”
El Mundo:
  • Prime Minister Mariano Rajoy intends to raise pensions by 1% next year. The 1% increase will cost the state EU1.2b.
The Australian:
  • Low-doc risks rise in loans scramble. HIGHER-RISK pre-GFC-style lending practices are flooding back with non-bank lenders scrambling for their share in the burgeoning sub-prime lending market. Non-bank major lender Resimac has embarked on a campaign to capitalise on the growing sub-prime sector and is offering low-doc loans to borrowers of up to 90 per cent of the value of a home.
Kyodo News:
  • More than 60 Japanese companies including Canon Inc. were told to leave an international trade show that began today in Chengdu, China.
  • China Researcher Sees Slowing 3Q Economic Growth. Zheng Xinli, vice chairman of the China Center for International Economic Exchanges, said that China's economic growth in the 3rd quarter will continue to slow. The "unexpected" impact of the euro debt crisis on China's exports, and liquidity tightening to curb inflation are causes for the slowdown, Zheng says.

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