29 Oct 2013
Market lift on poor consumer confidence lifts broken markets
FXstreet.com (London) -Equity markets continue to climb, thanks to poor US consumer confidence figures released today.
In episode number 253,512 of Why Markets Are Broken, the biggest drop in US consumer confidence since August 2011 has helped to lift equity markets, with the S&P up 0.28 percent, thanks to solidifying expectations of continuing Federal Reserve support.
The Fed begins its two-day FOMC meeting today where it will almost certainly hold currency policy. Expectations are that the Fed will not move to trim its USD85bn-a-month asset purchase programme before March, but it is likely that any taper will be pushed well into 2014.
Numbers released today showed a plummet in consumer confidence, attributed to the effects of the government shutdown at the beginning of the month as a result of a congressional stand-off over the debt ceiling. The Conference Board’s index fell to 71.2 from a revised 80.2 last month – the weakest print in six months.
The poor confidence numbers follow weak labour market data. This month’s non-farm payrolls showed just 148,000 new workers added in September, the lowest rise in three months.
Minutes from today and tomorrow’s FOMC meeting will likely show more of the same. The Fed buys assets on a huge scale, it holds rates down, equity markets rise on bloated corporate profits thanks to artificially low rates allowing cheap credit, but Wall Street exuberance fails to filter down to Main Street with businesses not hiring and consumers not spending. So the Fed carries on buying assets and holding down rates the next month. And the next month. And that’s without the effects of other branches of the government hitting confidence with debt ceiling bickering threatening US ability to service its debts.
With Janet Yellen set to take over from Ben Bernanke on January 2014, it is highly unlikely that the dovish policymaker will suddenly move to curtain Fed intervention. And with the temporary extension of the debt ceiling set to be reached on 7 February there doesn’t seem to be much space for a sudden attack of substantial, sustained labour market growth for the Fed to do anything to tighten policy for the foreseeable future.
In episode number 253,512 of Why Markets Are Broken, the biggest drop in US consumer confidence since August 2011 has helped to lift equity markets, with the S&P up 0.28 percent, thanks to solidifying expectations of continuing Federal Reserve support.
The Fed begins its two-day FOMC meeting today where it will almost certainly hold currency policy. Expectations are that the Fed will not move to trim its USD85bn-a-month asset purchase programme before March, but it is likely that any taper will be pushed well into 2014.
Numbers released today showed a plummet in consumer confidence, attributed to the effects of the government shutdown at the beginning of the month as a result of a congressional stand-off over the debt ceiling. The Conference Board’s index fell to 71.2 from a revised 80.2 last month – the weakest print in six months.
The poor confidence numbers follow weak labour market data. This month’s non-farm payrolls showed just 148,000 new workers added in September, the lowest rise in three months.
Minutes from today and tomorrow’s FOMC meeting will likely show more of the same. The Fed buys assets on a huge scale, it holds rates down, equity markets rise on bloated corporate profits thanks to artificially low rates allowing cheap credit, but Wall Street exuberance fails to filter down to Main Street with businesses not hiring and consumers not spending. So the Fed carries on buying assets and holding down rates the next month. And the next month. And that’s without the effects of other branches of the government hitting confidence with debt ceiling bickering threatening US ability to service its debts.
With Janet Yellen set to take over from Ben Bernanke on January 2014, it is highly unlikely that the dovish policymaker will suddenly move to curtain Fed intervention. And with the temporary extension of the debt ceiling set to be reached on 7 February there doesn’t seem to be much space for a sudden attack of substantial, sustained labour market growth for the Fed to do anything to tighten policy for the foreseeable future.