Tuesday Morning Cheat Sheet: 3 Stories Moving Markets
The markets were mixed in Asia overnight. The Nikkei climbed for the fourth consecutive day on the back of a revitalized government stimulus plan. The Hang Seng and S&P/ASX 200 were both off fractionally. European markets were also off heading into the opening bell in New York, led by the DAX, which was down more than 1 percent. Brent dropped about 9 cents to $111.79 per barrel.
At 8:30 a.m.: S&P: -0.39%, Dow: -0.36%, NASDAQ: –0.31%.
1) No surprise here: Fitch has issued a press release titled: “Debt Ceiling Delay Would Prompt Formal US Rating Review.” The international ratings agency says that while the risk of default “remains extremely low,” “failure to raise the debt ceiling in a timely manner will prompt a formal review of the U.S. sovereign ratings.”
Fitch concisely elaborates: “On 31 December 2012, U.S. federal government debt reached the statutory debt limit of USD16.394trn and consequently the Treasury has begun to implement extraordinary measures that will create an estimated USD200bn of additional headroom under the debt ceiling. A repeat of the August 2011 ‘debt ceiling crisis’ would oblige Fitch to review its current assessment of the reliability and predictability of the institutional policy framework and prospects for reaching agreement on a credible medium-term deficit reduction plan.”
2) It was hard work preventing the collapse of the common currency in Europe, and Germany’s economy is fatigued from the effort. Europe’s largest economy played a critical role in the region’s financial reform, providing bailout funding and loan guarantees. But economists are forecasting that the German economy shrank as much as half a percent in the fourth quarter, and that first-quarter growth could also be soft.
Unemployment in the country remains relatively low at 5.4 percent and wages continue to grow modestly, but a tepid German economy could indicate slow growth in the broader European economy heading through the first quarter of 2013. The government is due to release its estimate for 2013 growth on Wednesday.
3) Economists and global market participants have a keen eye on Japan’s 10.3 trillion yen ($116 billion) stimulus package. Prime Minister Shinzo Abe announced the plan on January 11, and is encouraging the Bank of Japan to double its inflation target to 2 percent in a familiar give it gas ’till it goes monetary effort to stimulate the country’s sputtering economic engine. Japan, the world’s third-largest economy, has suffered three recessions in five years.
But just as there is disagreement over the pros and cons of easy money in the United States, Japanese authorities are divided over Abe’s stimulus plan. Economy Minister Akira Amari has expressed concerns that Abe’s policy could drive down the yen and increase import prices. Philadelphia Federal Reserve Bank president Charles Plosser agrees that intentionally driving down currencies comes packed with risk.