Today's Headlines
Bloomberg:
- 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.
MarketWatch.com:
- 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.
CNBC:
Zero Hedge:
Business Insider:
New York Times:
Reuters:
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.”
Telegraph:
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.
Xinhua:
- 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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