Wednesday Morning Cheat Sheet: 3 Stories Moving Markets

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Most major markets advanced in Asia on Wednesday following news that President Barack Obama will nominate Janet Yellen to be chairman of the U.S. Federal Reserve. In Japan, the Nikkei climbed 1.03 percent to 14,037.84 and the yen weakened to 97.265 against the dollar. In Hong Kong, the Hang Seng fell 0.63 percent to 23,033.97, and in Shanghai the Composite climbed 0.62 percent to 2,211.77.

In India, the Mumbai Sensex climbed 1.33 percent to 20,249.26, buoyed by expectations that the Fed will maintain an accomodative monetary stance for the foreseeable future. In Australia, the ASX All Ordinaries edged up 0.07 percent to 5,151.60. European markets mostly advanced in mid-day trading. In the UK, the FTSE 100 was off 0.15 percent; in Germany, the DAX was up 0.14 percent; in France, the CAC 40 was up 0.43 percent; and the Euronext 100 index was up 0.15 percent.

U.S. equities, which tanked on Tuesday, edged higher in pre-market trading on Wednesday. At 8:50 a.m., Dow futures were up 0.16 percent, S&P 500 futures were up 0.25 percent, and Nasdaq futures were up 0.23 percent.

Here are three stories to keep an eye on.

1. U.S. Fiscal House

The United States continues to stumble through a partial shutdown of the federal government. Every day the conversation focuses more on the looming debt ceiling and less on the actual shutdown, but there still appears to be little progress toward a solution to either issue.

The entire impasse got started on a bad foot when Senator Ted Cruz (R-Texas) and a coalition of ultra-conservative Republican lawmakers demanded that Congress use the federal budget as a vehicle to undermine the Affordable Care Act.

But with President Barack Obama and congressional Democrats staunchly opposed to changing the ACA because of budget negotiations, the debate seems to be refocusing around actual spending levels.

2. Janet Yellen

President Obama will nominate Janet Yellen to be the chairman of the U.S. Federal Reserve. Current Chairman Ben Bernanke’s term is set to expire on January 31, and it has been widely speculated that he would not seek another term. Yellen currently serves as vice-chair of the central bank, and previously served as President of the San Francisco Federal Reserve Bank. Markets generally reacted favorably to the news. Yellen, perceived to be more dovish on inflation than hawkish, is expected to maintain the Fed’s highly accommodative monetary position into the foreseeable future.

As vice chair since 2010, Yellen has played an instrumental role in the evolution of the Fed’s role as a financial regulator. She has helped create a framework for financial regulation — much of which is tied up in advancing the Fed’s capacity to gather information, as with the establishment of the Office of Financial Stability Policy and Research — and has helped oversee the implementation of the Dodd-Frank Act.

Speaking in June 2013 at the International Monetary Conference in Shanghai, Yellen offered a “brief retrospective on financial regulatory progress” since 2008. In it, she outlined the new framework she helped build and identified where there was work to be done. “Although we have made the financial system safer, important work remains in each of the three areas I have highlighted: the basic bank regulatory apparatus, addressing the problems posed by SIFIs, and limiting risks in shadow banking and financial markets.”

3. Bank of Japan

The Bank of Japan released the minutes from its September 4-5 meeting. Policymakers left both its benchmark interest rates and its bond buying program unchanged, but upgraded their assessment of the nation’s economic recovery. The policy board explains that, ”With regard to economic activity, members shared the view that a virtuous cycle from income to spending had gradually started to operate firmly both in the corporate and household sectors: in the corporate sector, improved profits were exerting positive effects on business fixed investment; and in the household sector, improvement in the employment and income situation was playing a role in supporting private consumption.”

The policy board also provided some perspective on the U.S. economy. ”Members agreed that the U.S. economy had been on a moderate recovery trend against the backdrop of steady private demand, such as private consumption and housing investment, despite downward pressure from the fiscal side. One member noted that the mechanism for a self-sustained recovery appeared to operate properly on the whole as firms’ and households’ credit demand had been firm in a situation where, in addition to private consumption, business sentiment was improving.

“As for the outlook, members concurred that the pace of economic recovery would gradually rise, albeit moderately, as downward pressure from the fiscal side would ease gradually and accommodative financial conditions.” It will be interesting to see what policymakers have to say in the wake of the U.S. budget impasse.

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