… Yen and Euro face selling pressure
Why not the yen, knowing traders’ preference for that safe haven? The recent effervescence in the Japanese political arena is prompting investors to stay wary of the yen. Late comments by the LDP’s leader S.Abe – according to the polls, the next PM – have ignited the last rally in USD/JPY, after he confronted the BoJ, signaling that the monetary authority was not doing enough to curb the deflation that has been hammering the country for decades. Regarding that significant matter, he promotes revising up the actual inflation target to 2-3% from 1%, implementing a “bold easing”.
Back to Europe, last week’s preliminary GDP figures of the third quarter have confirmed the 17-nation bloc slipped back into recession, and the panorama ahead of the fourth quarter does not seem promising in the slightest. Greece continues to be like a time-bomb, with a plethora of market chat betting on the potential scenarios out of the negotiations regarding its sovereign debt and a time extension (probably two years) in order to meet the EU demands. Madrid, on the other hand, remains sitting on its hands, now more than ever, after the European Commission ruled out further austerity measures in the near term. Both late protagonists of the euro crisis have in common a markedly augmented level of social unrest and record highs of unemployment.
Tomorrow’s meeting of EU finance ministers and the EU Summit towards the end of the week would shed more light - or not, as showed by the results of recent gatherings - over the situation and future steps of both countries.
… In the meantime, in the US
A couple of factors actually have the potential to undermine the bullish prospects for the world’s reserve, and both not minor ones: with the re-election of President B.Obama already in the rear mirror, the path is now clear to deal with the ‘fiscal cliff’. Optimism seems to arise however, after last Friday’s talks between the US President and the Congressional leaders, with promises of joint efforts in order to overcome this heavy heritage.
The other obstacle comes from the Fed. If the US falls over the ‘fiscal cliff’, Chief B.Bernanke will automatically press the “panic-button”, and even more liquidity would be pumped into the domestic economy, as the American economy would be casted to recession territory.
Another front is likely to emerge from the FOMC doves: their idea is to maintain the easing bias until both the jobless rate and the inflation reach specific levels, replacing the actual next rate-hike time – currently 2015.
And last, ‘Operation Twist’ will finish at the end of the present year. But the Fed could keep alive the monthly purchases of $45 billion US long-term Treasuries simply printing more dollars, and adding them to the recent MBS programme, worth $40 billion per month.
The next ‘fiscal cliff’ talks will be crucial as well as the next FOMC meeting in mid December. In the euro bloc, the main events of this week would be delivered by the EU finance ministers meeting on Tuesday and the EU Leaders Summit towards the end of the week.
… Shorter trading week in the US
Chief B.Bernanke speech will be scrutinized tomorrow, followed by the Reuters/Michigan Consumer Sentiment index, the preliminary manufacturing PMI print, and the weekly report on the labor market on Wednesday, ahead of Thanksgiving Day on Thursday.