Wednesday Morning Cheat Sheet: 3 Stories Moving Markets
The U.S. Federal Reserve concludes a two-day policy meeting Wednesday afternoon, and markets around the world appear to be anticipating a light taper of asset purchases. Japan’s Nikkei climbed 1.35 percent to an eight-week high of 14,505.36 while the yen strengthened slightly to 99.015 against the dollar. In Hong Kong, the Hang Seng fell 0.27 percent to 23,117.45, and in Shanghai, the Composite gained 0.29 percent to 2,191.85. In India, the Mumbai Sensex climbed 0.8 percent to 19.962.16. In Australia, the ASX All Ordinaries fell 0.28 percent to 5,230.40.
European markets advanced in midday trading. Germany’s DAX was up 0.44 percent, London’s FTSE 100 was up 0.58 percent, France’s CAC 40 was up 0.4 percent, and the Euronext 100 was up 0.58 percent. The euro was trading at 0.749 against the dollar.
U.S. futures at 8:30 a.m. were mixed: DJIA: -0.02%, S&P 500: +0.03%, NASDAQ: +0.22%.
Here are three stories to keep an eye on.
1. “Taper Lite”
Fed Chairman Ben Bernanke will hold a news conference Wednesday at 2:30 p.m. EDT, during which he is expected to announce a modest tapering of the asset purchases being conducted under QE3. Markets have been anticipating the move for months and have driven up interest rates by about 1 percentage point as a result. Early Wednesday morning, the yield on the benchmark 10-year Treasury was down slightly, at 2.853 percent, but still up from about 1.6 percent in May.
At this point, the Fed would have to do something extreme — such as not taper at all, or taper a lot (more than $15 billion to $20 billion per month) — to really surprise the market. A surprise, though, is still in the dice. Speaking with Bloomberg, Erik Britton, a director at Fathom Consulting, said: “Markets, that’s how [they] work. They price things in before the event. And then when the event occurs, there can be some movement in the opposite direction … there’s a risk of that.”
2. U.K. Economy
The Bank of England released the minutes from its September 3-4 monetary policy meeting Wednesday, and, as expected, they revealed that U.K. policymakers remain united behind the existing strategy. The BoE currently has the nation’s benchmark Bank Rate cut to 0.5 percent and has kept its stock of asset purchases at 375 billion pounds ($599 billion).
On this side of the pond, it’s particularly interesting to see what the BoE has to say about economic conditions in the United States. From the minutes:
“In the United States, second-quarter GDP growth had been revised up to 0.6% as a result of stronger trade data. Data concerning the third quarter had been mixed, with increases in the manufacturing activity ISM index in July and August, and in the non-manufacturing ISM index in July, set against weaker-than-expected employment and durable goods orders figures. Overall, there seemed little reason to aim off the baseline assumption made at the time of the August Inflation Report for growth of around 0.5% a quarter in the second half of the year. Much of the commentary surrounding the US economic situation had centred on the likelihood or otherwise of the Federal Reserve reducing the pace of its large-scale asset purchases following the meeting of the FOMC in the middle of September.”
3. Here’s the World Bank Strategy to Target Global Poverty
The World Bank may consider a major strategic revision as it plans to combat poverty through strategic lending across the globe, Reuters reports. The bank is trying to accomplish its goals of vanquishing extreme poverty and aiding the income of the poorest 40 percent of people in each country. However, the bank has made only sluggish progress toward revamping its image since the era of globalization.
Often overshadowed by organizations such as the International Monetary Fund, the World Bank faces new challenges and problems if it is to continue to be a worldwide presence. Some have criticized the bank for being too slow to provide effective aid and for being prone to avoid risks in favor of more sound, calculated procedures. While this has helped the bank maintain its reputation of solidity, it has not helped the bank expand its lending programs to more of the world’s poor… (Read more.)