Fed Talks Patience With Rate Hike; Signals Data Dependent

globThe Federal Reserve released a policy statement yesterday that confirmed the central bank’s pledge to keep interest rates low for the foreseeable future to help stimulate growth  as 2014 comes to a close and economists await for signals of an interest rate hike in 2015 as the U.S. economy recovers and the demand for aggressive monetary policy from the Federal Reserve to fight off recession slowly wanes.

The Fed wrote that it can be patient in beginning to normalize the stance of monetary policy and allow rates to move higher.

“Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”

The Fed maintained that it will be appropriate to keep short term interest rates low, between 0 to 1/4 percent target range, for a “considerable time” following the end of its quantitative easing program in October, “especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”

Data Dependent

But in the very next sentence Fed Committee members acknowledged that if incoming economic continues to improve, then rate increases are likely to occur “sooner than currently anticipated” or conversely “later than currently anticipated” if economic progress weakens.

“However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated” the statement reads.

Fed Chair Yellen said that the central tendency of 2014 GDP projections have moved up since September and come in at 2.3 to 2.4 percent.

Inflation expectations for 2015 are between 1 and 1.6 percent.

-Johnathan Schweitzer

 

Fed Meeting In Focus As Market Watches For Signs of Interest Rate Hike

feddcThe Federal Reserve will conclude their December meeting today and Fed committee members could begin communicating the central bank’s plan to slowly raise interest rates in 2015 as the U.S. economy shows steady signs of solid economic growth despite weak global growth in other major world economies.

The Federal Reserve meeting concludes today at 2:00 p.m. EST.

At the end of the meeting, the Fed will release a statement followed by a press conference with Fed Chair Janet Yellen who will likely be asked questions about the Fed’s economic forecast for 2015 amid an economic environment of falling oil prices that are at a 5 1/2 year low and could push U.S.  inflation levels lower and further away from the Fed’s 2 percent inflation target at atime when the central bank is placing greater emphasis on U.S. inflation levels with its dual mandate and as both employment and wage growth are improving.

Economists and investors will watch the Fed’s statement closely to determine if the Federal Reserve has removed the 2 words “considerable time” about when the Federal Reserve plans to begin raising interest rates after concluding their quantitative easing program. Most economists believe that by removing “considerable time”  from the Fed’s timetable, the Fed Reserve is slowly beginning to telegraph to the market its intention to raise interest rates in 2015, likely in the middle of 2015.

The U.S. economy has shown clear signs of recovery since December 2008 when Federal Reserve Chair Ben Bernanke pledged to keep short term interest rates near zero to help stimulate lending and stronger economic growth in the world’s largest economy.

The U.S. unemployment rate has fallen to 5.8 percent from its peak of 10 percent in October 2009 while November’s job report showed 321,000 non-farm payroll jobs added to the economy, the largest gain since January 2012. Over the past year, the average monthly gain of non-farm payroll jobs has been 224,000.

Meanwhile, consumer spending in the U.S. is improving amid falling gasoline prices and U.S. GDP growth in the 3rd quarter of 2014 was a robust 3.9 percent, according to the 2nd estimate from the U.S. Department of Commerce.

-Johnathan Schweitzer

 

Lower Oil Prices “A Sign Of The Times” With Weaker Global Growth, More Oil Being Produced

oilThe price of oil continues to slide amid signs of weaker demand from slower global growth and an oversupply of oil in the market with U.S. shale drillers adding more oil to already high oil barrel levels that are found in the global market.

The price of international benchmark Brent crude fell today over 1.93 percent to $54.81, moving below a  5 1/2 year low.

Uncertainty over the price of oil has weighed down on markets and forced selling pressure on shares of energy companies.

Last week the International  Energy Agency released the oil market report for December and said that 2015 global oil demand will grow by 900,000 barrels a day (mb/d) which is 230,000 less than previously forecast to 93.3 million compared to 92.4 in 2014.

Today the price of oil moved lower after a manufactory report from China showed industrial activity contracted for the first time in 7 months and weaker housing starts data in the U.S. were also reported for November.

Chinese factory output growth declined to 7.2 percent in November from 7.7 percent growth in October.

China’s GDP growth rate remains the slowest in 5 years and is expected to be 7.1 percent in 2015 from 7.5 percent this year.

Meanwhile, growth in the 18 member Euro area currency area remains lackluster.

GDP growth advanced 0.2 percent in the third quarter of 2014, up from a 0.1 percent in the second quarter.

Some of the higher GDP growth occurred  due to changes in the GDP calculating methods introduced by the Eurostat.

Low inflation remains a concern in the Euro area which had 0.30 percent inflation in November 2014, down from 0.4 percent in October and well below the ECB’s target of just below 2 percent.

Falling oil prices have helped to lower inflation in the U.S. during a period of time when the U.S. Federal Reserve is closely watching U.S. inflation levels to determine whether 2015 is the right time begin hiking short term interest rates.

Tomorrow the Federal Reserve will meet in Washington for their final 2014 FOMC meeting.

Economists expect Fed Chair Yellen to speak about falling oil prices being a boon to the U.S. economy even as weaker oil prices sends inflation further away from the Fed’s 2 percent target and weaken other economies such as Russia’s, causing a negative trading impact with the economies in Europe that depend on selling products to Russians.

Russia’s central bank has responded to the plunge in Russia’s currency by raising its key interest rate from 10.5 percent to 17 percent as the Russian economy plans to enter a recession in 2015 mostly due to collapsing oil along with some international sanctions.

-Johnathan Schweitzer

U.S. Federal Government Shutdown Averted; Gunman In Sydney Holds Several Hostages Inside Cafe

boopAsian stocks are trading lower on Monday, oil is bouncing off its 5 1/2 year lows reached on Friday, and  investors are breathing a sigh of relief after the U.S. Senate approved a $ 1.1 trillion spending bill on Saturday that prevents another federal government shutdown through September 2015.

The Senate approved the spending bill by a margin of 56 to 40.

The bill will now be sent to President Obama  for his presidential signature before Wednesday.

Although the bill overcame a delay tactic from Senator Ted Cruz (R-Texas) who objected to the bill on grounds that it funds President Obama’s executive order with immigration through February 27th, the Senate obtained enough votes to pass the bill.

Senator Elizabeth Warren (D-Mass), a ranking member of  the House Financial Services Committee, expressed her discontent with the spending bill because of a key provision of the 2010 Dodd-Frank law was removed that places more regulations on derivative trading with large Wall St. banks.

The 1,603 page spending bill lowers the budget for the Environmental Protection Agency (EPA) by $60 million, relaxes the rule that shortens the maximum workweek for truckers from 82 to 70 hours, and adds $5.4 billion to fight the Ebola virus and $5.6 billion fight ISIS in the Middle East.

Australia

On Monday in Sydney an armed man held captive several people inside a popular café and Lindt chocolate shop.

The hostages have been held for over 8 hours inside the shop.

Some of the hostages were seen taking turns holding up the gunman’s black Islamic flag on the window.

9 NEWS in Australia just reported that five hostages (3 men and 2 women) have recently escaped from the café and ran into the arms of police outside the café.

It is unclear exactly how many more hostages are being held captive inside.

CNN is reporting that the Sydney hostage taker is demanding an ISIS flag and a phone call with Australian PM Tony Abbott who recently posted on Twitter the following message:

“It’s been a difficult day, which has tested us, but like Australians in all sorts of situations, we have risen to the challenge.”

-Johnathan Schweitzer

A hostage runs toward police from a cafe in Sydney's central business district where an armed gunman is holding an undisclosed number of people hostage on Monday, December 15. She was one of five people seen fleeing the building.A hostage runs toward police from a cafe in Sydney’s central business district where an armed gunman is holding an undisclosed number of people hostage on Monday, December 15. She was one of five people seen fleeing the building.
Armed police are seen near a cafe in Martin Place in Sydney's central business district, where a gunman was holding terrified hostages inside, triggering a lockdown in an area home to government and corporate headquarters on December 15. Armed police are seen near a cafe in Martin Place in Sydney’s central business district, where a gunman was holding terrified hostages inside, triggering a lockdown in an area home to government and corporate headquarters on December 15.
A police sniper walks to his vehicle during a hostage siege in the central business district of Sydney, December 15. A police sniper walks to his vehicle during a hostage siege in the central business district of Sydney, December 15.
Police walk through Martin Place as spectators look on during a hostage siege in the city's financial district on December 15. Police walk through Martin Place as spectators look on during a hostage siege in the city’s financial district on December 15.
Two hostages run for cover behind a policeman during the siege on December 15. Two hostages run for cover behind a policeman during the siege on December 15.
Members of the New South Wales Police Force's Public Order and Riot Squad are seen outside Lindt Chocolate Cafe in Martin Place in the central business district of Sydney on December 15. Members of the New South Wales Police Force’s Public Order and Riot Squad are seen outside Lindt Chocolate Cafe in Martin Place in the central business district of Sydney on December 15.
Police stand at the ready near the cafe. Seven Network reported that at least 13 hostages were being held on December 15. Police stand at the ready near the cafe. Seven Network reported that at least 13 hostages were being held on December 15.
 A sniper sets up outside the cafe on December 15. A sniper sets up outside the cafe on December 15.
Police close a street near the scene on December 15. Police close a street near the scene on December 15.
Armed police patrol near the Sydney Opera House. Major landmarks in Sydney, including the Opera House, have been evacuated as police respond to a hostage situation inside a Martin Place cafe on December 15. Armed police patrol near the Sydney Opera House. Major landmarks in Sydney, including the Opera House, have been evacuated as police respond to a hostage situation inside a Martin Place cafe on December 15.
Police patrol near the cafe on December 15. Police patrol near the cafe on December 15.
Armed police gather outside the cafe on December 15. Armed police gather outside the cafe on December 15.
 Police officers talk at the scene on December 15. Police officers talk at the scene on December 15.
Photos: Hostage situation in Sydney Photos: Hostage situation in Sydney

Watch this video

Police: ‘We are being tested today

 

 

 

House Of Representatives Pass 1.1 Trillion Dollar Spending Bill As Government Shutdown Fades Away

compromiseThe Senate will begin debate today on a a $ 1.1 trillion dollar short-term spending bill that the U.S. House of Representatives narrowly passed late on Thursday evening, just hours before the deadline, that funds the federal government and avoids a shutdown after President Obama and House Speaker John Boehner came together to rally support and move the bill forward despite facing some internal opposition from within both parties.

By a margin of 219-206 the new spending bill was approved in the  House of Representatives.

The bill funds the federal government through September 30, 2015 and the Department of Homeland Security through February 27, 2015 by means of continuing resolution.

Some Republicans were angered that the spending bill did not automatically eliminate funding for the Department of Homeland Security which handles immigration after President Obama bypassed Congress last month and used executive action to get immigration reform started on Capitol Hill.

Republicans will control both houses on Capitol Hill after January 1st and have more political leverage to challenge the long term funding of President Obama’s executive action with immigration that impacts the fate of 4.7 million undocumented immigrants who may be eligible to remain living in the U.S. and receive work visas.

House Democrats led by Minority Leader Nancy Pelosi were unhappy that the new bill stops the passage of Wall Street reform with the Dodd-Frank bill that was set for implementation in 2015 and would have made restrictions on derivatives trading with banks.

Democrats were also disappointed that the bill increases the amount of money that wealthy donors are allowed to contribute to national party committees.

The new cap is set at $ 777,600 for the three party committees instead of the current cap at $ 97,200.

Pelosi previously criticized the policy rider  in the bill that dramatically expands the amount wealthy donors can contribute in the future, claiming that it would “drown out the voices of the American people and expand the role of big money in our elections.”

Among House Democrats 57 voted in favor of the bill while 139 voted against it.

The bill could be voted on in the Senate as early as today.

President Obama is expected to sign the bill once it reaches his desk.

-Johnathan Schweitzer

 

 

Greece Shows Its Volatility Card After EU Creditors Offer 2 Month Bailout Extension

bailot On Tuesday Greek financial markets plunged nearly 13 percent and the yield on Greece’s 10 year bond spiked  to over 8 percent,  a level that is considered unsustainable, after Greece’s Prime Minister Antonis Samaras named former European Commissioner Stavros Dimas as his coalition’s candidate for president and searched to get the 180 votes needed to endorse Dimas and avoid snap general elections that could lead to a unexpected change in leadership and far leftist SYRIZA Party taking power.

According to Greece’s constitution, to become Greece’s president, a candidate needs to be elected by at least 180 members of the 300-seat parliament.

Wednesday December 17th will be the first day of parliamentary voting but the prospects look dim for the coalition to get the necessary votes on that date or during a second round of voting held on December 23rd.

The final decision is not expected to be reached until December 29th when 180 votes are required for a new candidate to be approved.

If 180 votes are not secured for a candidate to be approved, snap elections will be called and likely occur later in January.

Prime Minister Samaras’s New Democracy Party barely defeated Syriza during the June 2012 elections.

Recent polls show that far leftist SYRIZA Party is currently ahead and poised to gain the majority in a new vote.

SYRIZA is opposed to accepting the bailout terms from the European Union and IMF would rather defaut on their loans than face more imposed austerity measures.

SYRIZA Party leader Alexis Tsipras said on Tuesday that his party is ready to lead Greece.

“SYRIZA will provide solutions for the benefit of the people and the country,” Tsipras said before he spoke about a continued “torture of the new measures” in direct reference to bailout austerity measures.

Early on Tuesday before news spread about Samaras’ actions, euro area finance ministers agreed to provide Greece with a 2 month extension to its bailout package that has continued austerity measures.

When explaining the reason for the sudden presidential elections, Samaras’ coalition partner Evangelos Venizelos said on Tuesday that the goal was “to clear the political horizon and enable the country to marshal all its forces and all its arguments in the complex and difficult negotiation with the European partners and the IMF.”

-Johnathan Schweitzer

Concerns Over Interest Rate Hike, Falling Oil Worries Investors

rtGlobal equities are facing selling pressure on Tuesday morning as oil is trading near a five year low and a recent article published from the Wall St. Journal late on Monday has put some uncertainty into the market after it was suggested that Federal Reserve Committee members from the U.S. Federal Reserve might be considering to prepare the market for a short term interest rate hike in 2015.

According to the Dec 8th WSJ article written by John Hilsenrath, Fed members are considering to “shift their tone at their policy meeting next week” and drop their past reference to holding short term rates near zero percent “for a considerable time” that was first communicated since March and has proven to be a challenge to interpret for a market that has grown accustom to low interest rates to help stimulate growth since December 2008 during the global recession.

Next week the Federal Reserve will hold their final Fed meeting for 2014.

Some economists believe that is the right time to begin preparing the market for a short term rate hike in 2015 now that the Fed’s quantitative easing program has ended and the U.S employment picture is showing steady signs of stabilizing.

Last week the U.S. Labor Department reported that the U.S. economy added 321,000 non-farm payroll jobs, the largest gain since January 2012, while the unemployment rate held steady at 5.8 percent.

Over the past 12 months, the average monthly gain of non-farm payroll jobs has been 224,000 and average hourly earnings grew by 2.1 percent.

The consensus view is for the Federal Reserve to begin increasing rates in mid 2015.

Fed Chair Janet Yellen will hold a press conference after the policy meeting ends on December 17th and likely address the topic of the Federal Reserve raising interest rates.

-Johnathan Schweitzer

 

Government Shutdown Deadline Looms; Retail Sales In Focus

esCongress has until Thursday night to pass a new $1 trillion spending bill that funds the federal government through 2015 and avoids a government shutdown that could start as early as Friday.

Republicans in the House of Representatives are considering to challenge President Obama’s recent decision to use executive action to jump start immigration reform by approving a spending bill that funds the federal government through September 2015 but also carries continuing resolution (CR) that only funds the Department of Homeland Security through early 2015 when newly elected Republicans will gain the majority in Congress.

The Department of Homeland Security is a branch of government that manages border security and immigration issues.

On December 3rd Senator Ted Cruz (R-Texas) and Rep. Michelle Bachmann (R-Minn) spoke to reporters about the need to “defund” the president’s executive action after claiming that he violated the U.S. constitution by working to protect 4.7 million undocumented immigrants from deportation.

Retail Sales

The weekly calendar is light with economic data although Thursday will be closely watched since it is the day that retail sales will be reported for November.

Briefing.com forecasts a 0.7 increase in retail sales for November. In October retail sales saw an increase of 0.3 percent.

Investors are looking for reliable data about holiday spending patterns.

After Black Friday, Shopper Tracker and the National Retail Federation posted some early holiday sales data and projections.

Some confusion hit the market about Thanksgiving sales falling 11 percent  after it was posted on other websites, reportedly from the national retail  federation.

That 11 percent drop with Thanksgiving sales wasn’t reported here on this website because it couldn’t be verified and was in question.

-Johnathan Schweitzer

U.S. Economy Adds 321,000 Jobs In November; Unemployment Rate Unchanged At 5.8 Percent

jk

The U.S. economy added 321,000 nonfarm payroll jobs in November, the largest gain since January 2012, and higher than the 260,000 nonfarm payroll jobs forecasted by briefing.com. while the unemployment rate was unchanged at 5.8 percent,  according to a new release today from the Bureau of Labor Statistics.

Over the past 12 months, the average monthly gain of nonfarm payroll jobs has been 224,000.

Job revisions for September and October were 44,000 higher than previously reported.

September was revised from 256,000 to 271,000 while October was revised from 214,000 to 243,000

Today’s employment report for November showed the labor force participation rate held at 62.8 percent, mostly unchanged since April.

Employment gains were highest in professional and business services which had an increase of 86,000 in November, followed by retail with  50,000, and healthcare which saw gains of 29,000 for the month.

Average hourly earnings for all employees on private nonfarm payrolls increased $24.66 in November, a 9 cent increase.

For the year, average hourly earnings grew by 2.1 percent.

In November, the average workweek for all employees on private nonfarm payrolls increased  by 0.1 hour to 34.6 hours.

-Johnathan Schweitzer

Draghi Suggest More Monetary Easing If Growth Weakens in Euro Area

draghiECB President Mario Draghi has suggested that more monetary easing could occur if the economies in the 18 member euro currency union continue to struggle.

During his introduction speech to the press, Draghi said that the ECB would leave interest rates unchanged, as most expected ,and then explained that the ECB started purchasing 2 year covered bonds and asset-backed securities from mortgages and public sector loans.

Although the ECB began purchasing covered bonds in October, the central bank has not undertaken the same type of bond purchasing of government debt that was taken by the U.S. Federal Reserve, Bank of Japan, and Bank of England through quantitative easing.

With quantitative easing, a central bank purchases government bonds from private sector companies or institutions such as banks. The increased demand for government bonds drives up their value, making them more expensive to buy, and a less attractive investment.

The companies who sold the bonds may use the proceeds to invest in other companies or lend to other individuals in the economy rather than buying more of the bonds. It is hoped that this will make a simulative impact in the economy.

As inflation levels fall across the euro area economies, the threat of deflation lingers.

Draghi said that the ECB is watching inflation in the euro area and acknowledged that weak inflation is partly due to the drop in oil prices.

“We will also evaluate the broader impact of recent oil price developments on medium-term inflation trends in the euro area. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council remains unanimous in its commitment to using additional unconventional instruments within its mandate” Draghi said in his statement.

Later Draghi admitted “We will be particularly vigilant as regards the broader impact of recent oil price developments on medium-term inflation trends.”

GDP growth forecasts in the 18 member currency union were revised substantially downwards since the last meeting in September.

Downward revisions were made for domestic demand and net exports. The ECB forecasts annual real GDP increasing by 0.8 percent in 2014, 1.0 percent in 2015, and 1.5 percent in 2016.

Inflation forecasts are 0.6 percent for 2014, 1.1 percent for 2015, 1.4 percent for 2016.

“The risks surrounding the economic outlook for the euro area are on the downside. In particular, the weak euro area growth momentum, alongside high geopolitical risks, has the potential to dampen confidence and especially private investment” Draghi said.

“In addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook” Draghi added.

-Johnathan Schweitzer