SAO PAULO | By Marcus Nunes via Historinhas | Why? According to the “accountants”: “It’s no secret that spending cuts (and tax hikes) have retarded America’s growth for the past four years. But data from the Bureau of Economic Analysis suggests that the era of austerity may finally have ended.” See the “flagship chart” above.
SAO PAULO | By Marcus Nunes via Historinhas | There´s absolutely nothing new on the economic front! So why there´s so much talk about “policy normalization” (i.e. increase in rates)?
SAO PAULO | By Marcus Nunes via Historinhas | In The Risks to the Inflation Outlook SF Fed researcher Vasco Cúrdia writes: the median inflation forecast is not expected to return to the FOMC target of 2% until after the end of 2016. The uptick in inflation in the first half of 2014 could lead one to believe inflation is finally on the path back toward its target. However, inflation has shown similar patterns several times before and each time the uptick has never lasted very long. According to this model, we should not see inflation begin to recover more firmly until around the end of 2015.
By Sreekala Kochugovindan, Anando Maitra (Barclays) | History highlights the importance of the business cycle in determining the effect of rising rates on asset returns, a topic we discussed in depth in Scenarios for a shifting bond landscape. We examined US data since 1925 and selected episodes where US Treasuries sold off by more than 5% in one year. The results were pretty mixed, with equity returns ranging between plus and minus 50% and providing no consistent pattern.
SAO PAOLO | By Marcus Nunes via Historinhas | Before it was Peter Coy with John Maynard Keynes Is the Economist the World Needs Now. Now it´s Anatole Kaletsky with The takeaway from six years of economic troubles? Keynes was right: The main lesson is that government decisions on taxes and public spending have turned out to be more important as drivers of economic activity than the monetary experiments with zero interest rates and quantitative easing that have dominated media and market attention.
WASHINGTON | Comment by UBS analysts | The FOMC ended QE and made its Fed funds rate hike guidance a bit more data- dependent. While the funds rate is likely to remain in its current range “for a considerable time” after asset purchases end at the end of this month, rate hikes could occur sooner or later than the Fed currently anticipates depending on the evolution of economic data. This was as straightforward an FOMC statement as could have been expected at the end of QE. It does not suggest changes in Fed thinking; nor does it change our expectations for the first Fed fund rate hike in mid-2015.
MADRID | The Corner | As expected, the Fed confirmed the end of its QE3, although the announcement was slightly more restrictive. According to experts at Link Securitites, “while the decision shows that US economic conditions have improved (especially the labour market) and inflation remains at low levels, the message tone was more hawkish.”
MADRID | The Corner | Showing its confidence in the US economic recovery and the jobs market, the Fed announced it will put an end to its bond purchases scheme before the end of this week, the central bank announced after its FOMC two-days meeting on Thursday. Short-term interest rates will remain near zero for a “considerable time”.
MADRID | The Corner | Investors experienced the ECB’s stress tests hangover and were quite dovish throughout the Monday’s session. Apparently Tuesday won’t be any different and they will remain prudent until Wednesday, when the FOMC releases its conclusions. Markets expect the Fed to finish tapering, as well as an interest rates hike, experts at Link commented.
MADRID | The Corner | US corporate results from the third quarter might be around +4%/5% (earnings per share), but it is highly probable that European results will be weak. Also, there should not be great expectations on central banks to save the situation this time, except, possibly, a more “dovish” refocusing by the American Fed (the US central bank delayed an interest rate increase or even tapering, which would give support to markets).