FOMC meeting concluded silence, there were basically no change to their policies. The market was down as traders’ high expectations were not met.

 

 

The US Economy

FOMC meeting concluded silence, market down

• It looks like the Fed disappointed the market, which closed down 3%. A broad sell off in the last hour of trading was seen across the market.
• The FOMC meeting ended today with no news
• The big news of the meeting was so-called operation twist, where the fed is going to commit bond purchase of $400b in 6-10 year range.
• Ever since fed announced maintaining of rates near zero into 2013, the long bond fell below 2%. If we look at Japan as a guide for long rates, and the fed’s action under operation twist, it will be difficult to imagine rates going any lower.
• The general picture is still monetary accomodation and low interest rates, which will positively influence economic growth going forward. Further more, there is little likelihood of liquidity crisis when the fed is so accomodating.
• Important note: over the night, some republican leaders publicly made a written statement trying to influence the fed’s decision
• The dollar is stronger, 10-year bond yield is lower
• All commodities are down today substantially, more than the gains for US dollar

 

The bottom line

We watch the currencies and commodity relationship for indication of volatility in the world economy. The strength of the US dollar might be the effect of the fed not increasing their balance sheet at this time, and therefore lower inflation expectations.

 

The European Economy

IMF meeting starting tomorrow

• IMF urges European banks to raise capital - How are the European banks going to recapitalize?
• The ECB loosed rules on collaterials for bank borrowing
• BNP is reported to have gone mideast push for funding

The bottom line

This week is the IMF meeting and next month is the voting for European Financial Stability Facility (EFSF).

 

The Canadian Economy

Canada consumer price index increased

• The Canadian dollar closed below par, first time since February.
• Canadian CPI increased to 3.1% YoY from 2.7% in July
• Energy up 13.4% YoY, food up 4.4% YoY
• Mark Carney believes that the EFSF and ECB aids can be used much more efficiently and external sources of capital is not necessary. He also says Canadian economy is due to the downside, and pushed for more exports

 

The bottom line

Nothing is changed for Canada. Stock is testing the support level.

 

The market today

Yesterday we were testing resistance. The S&P500 is down 4% from last Friday’s close. We are close to testing support at 1154 level, which last occored on Sep 9. Next week is month end and we can expect a rally to re-test the month high of 1218 on Aug 31.