The reviews are in: Global financial markets love the Federal Reserve’s $600 billion program to buy U.S. Treasuries. And why not? In the short term, the Fed has pledged to support global asset prices with $600 billion in U.S. dollars. Whether global financial markets will be quite so enthused about the long-term effects of the Fed’s $600 billion buying spree is open to question.
The most important central banks among the developed economies are set to announce interest rate and monetary policy decisions in the forty-eight hours after the Fed speaks. If you’ve been hungry for central bank news, I think you’re about to get your fill.
The yield on the 30-year Treasury has moved back above 4%. The 30-year bond yield hasn’t been above 4% since early August and the highest yield then was just 4.05%
The People’s Bank of China raised its one-year lending rate to 5.56% from 5.31% and its deposit rate by 0.25 percentage points to 2.5%. The move sent markets lower around the world. China almost never changes its benchmark rates. So why raise them now?
Will India be the next country to join the global currency wars?
On October 15 Governor Duvvuri Subbarao of the Reserve Bank of India said that the bank may intervene “if inflows are lumpy and volatile” and disrupt the economy
I still think the medium term trend for the U.S. dollar is downward but in the very near term of the next few weeks the dollar looks like it could stage a technical rally from an extremely oversold position. In the short-term, a market that has fallen quickly can stage a rally that corrects part of the decline—and sets up the market for a further decline in the future. It’s the mirror image of the correction to a rally that sets up the market for a continued rally from a new base.What can we expect from the dollar here? A replay of the dollar’s oversold bounce in early August seems a reasonable guide. That bounce ran until August 23 or so before the dollar resumed its fall.
The annual meeting of the IMF (International Monetary Fund) ended with the U.S. accusing China of keeping the yuan artificially low and with China accusing the U.S. of flood merging markets with hot money by keeping its interest rates near 0%. I think Brazil got it just about right when said, “A pox on both your houses!” I’d be surprised if the G20 meetings that start next week manage much more than a face-saving statement of unity.
