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Interest rates continue to increase; the biggest hits coming in the MBS markets but treasuries are leading the way higher for rates. The dollar is weaker this morning pushing the stock indexes lower in early traded. Yesterday the bond and mortgage markets were closed for Veteran’s Day while equity markets were open; the DJIA fell 74 points yesterday on reports out of the G-20 meeting in Seoul S Korea that there is still no agreement on any co-operation among nations to control the value of their respective currencies and avoid a potential currency war. Each major exporting nation wants the dollar to firm, while the US is moving the drive the dollar lower. Pres Obama walked away from the G-20 meeting with nothing other than being criticized for the US easing policy. G-20 leaders agreed in Seoul to a framework aimed at stemming imbalances in trade and capital flows that risk roiling the global economy. Finance ministers will next year work on developing a set of early warning indicators, they said in their joint statement; just more bureaucratic jargon.
President Obama said the U.S. Federal Reserve’s second round of quantitative easing is designed to boost growth, not affect the value of the dollar, rebuffing charges that America is seeking a weaker exchange rate. Greenspan doesn’t agree, in comments in the Financial Times saying the QE is a policy of pursuing a weakening dollar. Obama and Bernanke are being globally criticized for the move by the Fed. Trying to spin the easing as a boost for the US economy can only be seen as a decision to drive the dollar lower. Although the Fed is concerned about deflation, that is being read as an excuse to beat down the dollar by many countries, including of course China, Brazil and Germany. Overall the President didn’t accomplish anything at the G-20 meeting. As far as the easing move helping improve US growth, we have argued since its inception it would not likely have much immediate impact. Can’t hammer it enough that the Fed is more intern in increasing inflation levels in and effort to avoid deflation; the result is interest rates are exploding higher at the long end of the curve and pulling mortgage interest rates higher. Neither the Fed or the Administration or Congress has a plan to aid the housing recovery, never had and don’t have one now; the result, mortgage rates increasing adding another hurdle for recovery.
Today the NY Fed will begin purchasing notes, the beginning of actual QE. The NY Fed announced the details of its buys on Wed, outlining the schedule from today through Dec 9th. IN that period the purchases of treasuries will total $105B; $75B of QE and $30B of re-invested principle pay downs on the $1.25T of MBSs bought to support the mortgage markets a year or so ago (ended at the end of last March). So far the markets are not being supported on the announcement. If looking for just one thing to focus on in this chaotic global turmoil over currency levels and debt crises; its inflation, mortgage rates and long dated treasuries are increasing in rates as a result.
The U.of Michigan consumer sentiment index, the only data today, was expected at 69.0 frm 67.7, it was about on target at 69.3; the expectations index at 62.7 from 61.9 was less than the 63.5 estimate. No market reaction to the indexes.
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