Fed’s meeting and German elections, events you don’t want to miss

Let’s start with the Fed. Markets believe the U.S. monetary authority will start a gradual reduction in the purchase of assets. According to a Reuters, most economists considered that reduction shall be limited to $10 billion a month, although some raise that amount to 20 bn.

The other alternative might be to postpone the tapering until October or November, which would help to calm those investors who have recently warned of the risks of a premature decision.

And there is this option, that almost no one expects to happen, which would be a much more expeditious reduction of the purchase of bonds: $ 50 billion each month. This alternative, as Link Securities experts point out, would mean the triumph of the ‘hawks’ inside the Fed and would be badly received by the market.

A good example of how little that the market likes hawks is that the withdrawal of the candidacy of Larry Summers, a recognized hawk, from the race to the Presidency of the Fed caused generalized hikes on all global exchanges, including the Ibex, which went above 9,000 points.

Banking Union at stake
Another crucial date are the general elections in Germany. Except major surprises, Angela Merkel is meant to renew her mandate, although it is not clear whether she can do it with its current partners, the Liberals, or will have to seek other supports.

And it is not the same as Merkel governs with liberals than with the Social Democrats. Spain, for example, could be interested in a grand coalition with the SPD that would relax austerity policies in the European periphery.

Greece and Portugal are also interested in more Europe and less austerity. Remember that it is still not clear how financing needs not covered in official aid will be handled in Greece, or new measures that will be necessary to apply in Portugal when their rescue ends in 2014.

The result of the elections will also be essential for the banking union. It is fair to say that three or four years ago no one would have imagined that Germany would given 500 billion euro to the so-called European stability mechanism. Nor nobody would have expected that Merkel would support ECB’s bond buying program against the view of the sacred Bundesbank. You know ‘not all Germans believe in God, but all Germans believe in the Bundesbank’.

Therefore, we shouldn’t minimize the recent steps that Merkel’s government has given in support of the single currency. It’s necessary for them to continue, whatever the outcome of the elections.