Bird on the wire

September 16-20, 2013

AMERICAS

Markets:  Larry Summer's withdrawal from consideration for Federal Reserve Chairman makes Yellen the front runner. This progression towards certainty moved markets higher. Momentum which was furthered on Tuesday when, despite expectations to taper, the US Fed announced it would buy US $85 bn of treasury and mortgage bonds for the next several months. Naturally, this pushed markets to record levels... until Friday.

North American markets fell slightly on Friday. The S&P lost 0.7%, although remained up 1.3% for the week.  Friday afternoon, Canadian company RIM announced it would be cutting 4,500 jobs and will post a massive loss. This coincided with a drop in the TSX of 120 points. 

 Companies:  JP Morgan settled its "London Whale" case, agreeing to pay $920 mn to regulators. The Bank also had to admit to violating US federal securities laws. Payments will be made to both the SEC (US) and FCA (UK) as it was a global settlement. Some argue it is a punishment for the bank, but not the executives that allowed for the wrongdoing. For more information, click here

Apple released a new iOS operating system. The download is "the biggest change to iOS since the original iPhone" (according to CEO Tim Cook). According to monitoring firm Topsy, sentiment on social media around iOS 7 started off negative but has swung to become much more positive. Mashable has the 11 worst things about iOS 7, and the 16 best things.  The really cool thing, apparently, is its ability to have multiple internet connections at once (ie: wifi and 3G). 

A controversial move by Starbucks, when the company asked customers not to bring guns in outlets [it never occurred to me they would]. Previously, the company followed local gun laws. The official line from CEO Schultz is: 

Everyone is welcome in our stores, but weapons are not

Otherwise:  With regards to the tapering being delayed... is it really good news? It creates a further delay until tapering happen, and indicates the economy is not as strong as the majority of investors thought. Furthermore, communication seems to be a main facet of central bank behaviour as of late and this adds to confusion of how labour market improvements should be understood.  

Some Central Bank questions one should keep in mind: 

  • Should nominal GDP be targeted, or should guidance exist around unemployment and inflation?
  • How should the fed balance inflation and growth needs? 
  • How do you measure asset bubbles, and protect against instability? 
  • Should national needs be allowed to have global repercussions? 

Also, Canada may be setting up a new securities regulator.

 EMEA

Like American markets the FTSE Eurofirst 300 gained for the week (1%) but lost 0.3% on Friday.

In the UK, the government sold off a 6 per cent stake in Lloyds for 3.2bn GBP, bringing their stake down to 33 per cent.  The treasury made 61m GBP from the sale. While the government's stake in Lloyds is now reduced to 32.7%, it still retains an 81% stake in Royal Bank of Scotland (RBS), which it is not expected to sell in the near future.

Concerns over a housing bubble continue to escalate, and it seems that cash purchases are fueling it. Housing bubbles are particularly threatening as individuals who buy property tend to borrow far more as a proportion of income than if they were buying other assets.

Also, keep your eyes tuned to the telly/interweb tonight. German elections are on like Donkey Kong and last checked, it looks like Merkel could win a majority! If she does, she will become Europe's longest serving female leader

 


Bird on the wire is classic by Leonard Cohen. In this instance, it reflects the dovish behaviour shown by the US Fed in choosing to continue asset purchases despite expectations otherwise. They are walking a fine line (dare I say, wire?).