Italian tensions in focus as emerging markets steady

1 of 3. A man walks through the lobby of the London Stock Exchange August 5, 2011.

Credit: Reuters/Suzanne Plunkett

By David Gaffen

NEW YORK | Mon Aug 26, 2013 1:46pm EDT

NEW YORK (Reuters) - U.S. Treasury bonds rallied after a weaker-than-expected result for durable goods orders, but global equity markets were relatively calm in an otherwise slow Monday trading session.

One exception was in Italy, where the risk of a new government crisis sent shares and bonds tumbling.

Orders for long-lasting U.S. manufactured goods fell the most in nearly a year in July and a gauge of planned business spending on capital goods tumbled.

The weak data boosted prices in the U.S. bond market, where the benchmark 10-year U.S. Treasury note was up 3/32, the yield at 2.80 percent.

The durable goods report was the latest in a series of data points that have kept expectations for the Federal Reserve's next step muddled. Economists largely expect the Fed will start to reduce its $85 billion in monthly purchases of debt, but some uncertainty over this remains.

Craig Dismuke, chief economic strategist with Vining Sparks in Memphis, Tennessee, said the news would not stop the Fed from "tapering," but that the Fed "might taper less than expected."

The debate over the Fed's plans and its impact on emerging economies has dominated markets in recent weeks.

The Dow Jones industrial average .DJI was up 13.42 points, or 0.09 percent, at 15,023.93. The Standard & Poor's 500 Index .SPX was up 2.04 points, or 0.12 percent, at 1,665.54. The Nasdaq Composite Index .IXIC was up 18.76 points, or 0.51 percent, at 3,676.55.

"The numbers were disappointing this morning, but maybe we've returned to one of those odd situations where bad news is good for the market in terms of the Fed tapering," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

In Italy, members of Silvio Berlusconi's center-right People of Freedom party said on Sunday they would force early elections if their center-left coalition allies voted next month to expel the former Italian premier over a tax fraud conviction.

Italian shares .FTMIB ended down 2.1 percent, but the broader euro zone stock market .STOXX50E was down just 0.2 percent. Italy's bonds fell, taking Spanish and Portuguese bonds down with them.

Investors are worried that Italy's plans to mend its finances will fall apart if the coalition crumbles and that being without a government could make it tricky for the European Central Bank to shield it from market pressure.

"If you have new elections now there is a high risk you would not have a majority government, so that is why we are seeing a widening of spreads in the periphery," said ING rate strategist Alessandro Giansanti. He noted the timing is poor, given Italy is set to sell bonds this week.

EMERGING LULL

After the turmoil of last week .MSCIEF, share indexes in India gained ground, though there were modest falls in Indonesia and both countries' currencies weakened again against the dollar. .

Investors are expecting improving returns from advanced economies while India, Indonesia and Brazil have all scrambled in recent weeks to try to stem destabilizing outflows that have crippled their currencies.

The Indian rupee weakened on Monday, tracking offshore rates, while month-end dollar demand from importers also dragged the currency lower. The country's central bank stepped in to sell dollars to try to restrain the decline, which has taken the rupee to record lows.

Against the yen, the dollar traded at 98.67 off Friday's peak of 99.15, while the euro bought $1.3369, having climbed as high as $1.3410.

Spot gold, which as an inflation hedge has benefited from the global flood of liquidity, briefly popped above $1,400 an ounce for the first time since early June, extending Friday's 1.5 percent rally. It last stood at $1,396.36.

U.S. crude slipped to $106.42 a barrel, while Brent was down slightly at $110.96.

(Additional reporting by Ellen Freilich and Rodrigo Campos; Editing by John Stonestreet, Ruth Pitchford and Dan Grebler)

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Fed should focus on mortgage buys, sell Treasuries: study

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013.

Credit: Reuters/Jonathan Ernst

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Fri Aug 23, 2013 3:00pm EDT

JACKSON HOLE, Wyoming (Reuters) - The Federal Reserve should concentrate its unconventional monetary stimulus on mortgage asset purchases, according to a new study released on Friday, ditching Treasury bond buys which the authors say have not had much of an effect.

Presented at the Kansas City Fed's annual Jackson Hole conference, the paper argues rather controversially that the central bank should begin its exit strategy by selling Treasuries, something that is hard to conceive given the recent speedy selloff in government bonds.

The absence of concrete guidance as to the goal of asset purchases, which has been vaguely defined as aimed toward substantial improvement in the outlook for the labor market, neutralizes their impact and complicates an eventual exit, according to the paper's authors, Arvind Krishnamurthy of Northwestern University and Annette Vissing-Jorgensen of University of California, Berkeley.

"Without such a framework, investors do not know the conditions under which (asset buys) will occur or be unwound, which undercuts the efficacy of policy targeted at long-term asset values," the authors write.

Minutes from the Fed's July meeting, released on Wednesday, suggested policymakers had already considered such a step but, for now, decided against it.

"The Committee also considered whether to add more information concerning the contingent outlook for asset purchases to the policy statement, but judged that doing so might prompt an unwarranted shift in market expectations regarding asset purchases," the minutes said.

The authors of the study say the effects of the U.S. central bank's asset purchases, which began after the Fed had already brought official interest rates down in late 2008, are much narrower than policymakers' had foreseen.

Predictably, current and former Fed officials took issue with the findings. James Bullard, president of the St. Louis Fed, said the authors' focus on market impact immediately following policy announcements was misleading.

"I just wanted to push back against this conclusion that you get an effect in one single market and then there's not that much (impact) over a variety of assets," Bullard said.

Donald Kohn, former Fed Vice Chair, was also skeptical.

"The findings do not comport very well with the experience of the last couple of months," said Kohn.

Another former Fed vice chair, Alan Blinder, was even more blunt regarding the idea that Treasury sales would not have a major market impact: "You don't want to retract that given what happened recently?

U.S. Treasury 10-year note yields have risen sharply in the last two months to two-year highs above 2.80 percent following hints from the central bank that it may begin winding down its asset-buying stimulus program, also known as quantitative easing.

NARROW IMPACT

In particular, Fed Chairman Ben Bernanke and others have argued that asset purchases work by taking safe assets out of the market and therefore forcing cautious investors to take more risk. In official parlance, this is known as the "portfolio balance effect," affecting rates in markets well beyond those targeted by the Fed.

The impact of asset buying is a lot narrower than Fed officials contend, according to the authors of the paper.

"It does not, as the Fed proposes, work through broad channels such as affecting the term premium on all long-term bonds," the paper finds.

Instead, mortgage-buying has been more effective because, by targeting a specific sector that was under duress, Fed officials have been able to create scarcity of supply in the mortgage market, leading prices - and therefore credit availability - to rise.

"We find that (mortgage purchases) are more economically beneficial than Treasury (buying)," the authors write.

Recently, Fed officials have worried excess risk-taking may have gone a step too far, potentially leading to dangerous asset bubbles - hence all the talk of a ‘tapering' in quantitative easing.

In response to the worst recession in generations, the Fed has left official rates effectively at zero for over four years, and is on track to buy over $3 trillion in assets in an effort to support still-weak growth.

The U.S. economy expanded at an annualized 1.7 percent rate in the second quarter, while the jobless rate remains at an elevated 7.4 percent.

(Editing by Chris Reese and Tim Dobbyn)

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Fed should focus on mortgage buys, sell Treasuries: study

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013.

Credit: Reuters/Jonathan Ernst

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Fri Aug 23, 2013 3:00pm EDT

JACKSON HOLE, Wyoming (Reuters) - The Federal Reserve should concentrate its unconventional monetary stimulus on mortgage asset purchases, according to a new study released on Friday, ditching Treasury bond buys which the authors say have not had much of an effect.

Presented at the Kansas City Fed's annual Jackson Hole conference, the paper argues rather controversially that the central bank should begin its exit strategy by selling Treasuries, something that is hard to conceive given the recent speedy selloff in government bonds.

The absence of concrete guidance as to the goal of asset purchases, which has been vaguely defined as aimed toward substantial improvement in the outlook for the labor market, neutralizes their impact and complicates an eventual exit, according to the paper's authors, Arvind Krishnamurthy of Northwestern University and Annette Vissing-Jorgensen of University of California, Berkeley.

"Without such a framework, investors do not know the conditions under which (asset buys) will occur or be unwound, which undercuts the efficacy of policy targeted at long-term asset values," the authors write.

Minutes from the Fed's July meeting, released on Wednesday, suggested policymakers had already considered such a step but, for now, decided against it.

"The Committee also considered whether to add more information concerning the contingent outlook for asset purchases to the policy statement, but judged that doing so might prompt an unwarranted shift in market expectations regarding asset purchases," the minutes said.

The authors of the study say the effects of the U.S. central bank's asset purchases, which began after the Fed had already brought official interest rates down in late 2008, are much narrower than policymakers' had foreseen.

Predictably, current and former Fed officials took issue with the findings. James Bullard, president of the St. Louis Fed, said the authors' focus on market impact immediately following policy announcements was misleading.

"I just wanted to push back against this conclusion that you get an effect in one single market and then there's not that much (impact) over a variety of assets," Bullard said.

Donald Kohn, former Fed Vice Chair, was also skeptical.

"The findings do not comport very well with the experience of the last couple of months," said Kohn.

Another former Fed vice chair, Alan Blinder, was even more blunt regarding the idea that Treasury sales would not have a major market impact: "You don't want to retract that given what happened recently?

U.S. Treasury 10-year note yields have risen sharply in the last two months to two-year highs above 2.80 percent following hints from the central bank that it may begin winding down its asset-buying stimulus program, also known as quantitative easing.

NARROW IMPACT

In particular, Fed Chairman Ben Bernanke and others have argued that asset purchases work by taking safe assets out of the market and therefore forcing cautious investors to take more risk. In official parlance, this is known as the "portfolio balance effect," affecting rates in markets well beyond those targeted by the Fed.

The impact of asset buying is a lot narrower than Fed officials contend, according to the authors of the paper.

"It does not, as the Fed proposes, work through broad channels such as affecting the term premium on all long-term bonds," the paper finds.

Instead, mortgage-buying has been more effective because, by targeting a specific sector that was under duress, Fed officials have been able to create scarcity of supply in the mortgage market, leading prices - and therefore credit availability - to rise.

"We find that (mortgage purchases) are more economically beneficial than Treasury (buying)," the authors write.

Recently, Fed officials have worried excess risk-taking may have gone a step too far, potentially leading to dangerous asset bubbles - hence all the talk of a ‘tapering' in quantitative easing.

In response to the worst recession in generations, the Fed has left official rates effectively at zero for over four years, and is on track to buy over $3 trillion in assets in an effort to support still-weak growth.

The U.S. economy expanded at an annualized 1.7 percent rate in the second quarter, while the jobless rate remains at an elevated 7.4 percent.

(Editing by Chris Reese and Tim Dobbyn)

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Fed should focus on mortgage buys, sell Treasuries: study

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013.

Credit: Reuters/Jonathan Ernst

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Fri Aug 23, 2013 3:00pm EDT

JACKSON HOLE, Wyoming (Reuters) - The Federal Reserve should concentrate its unconventional monetary stimulus on mortgage asset purchases, according to a new study released on Friday, ditching Treasury bond buys which the authors say have not had much of an effect.

Presented at the Kansas City Fed's annual Jackson Hole conference, the paper argues rather controversially that the central bank should begin its exit strategy by selling Treasuries, something that is hard to conceive given the recent speedy selloff in government bonds.

The absence of concrete guidance as to the goal of asset purchases, which has been vaguely defined as aimed toward substantial improvement in the outlook for the labor market, neutralizes their impact and complicates an eventual exit, according to the paper's authors, Arvind Krishnamurthy of Northwestern University and Annette Vissing-Jorgensen of University of California, Berkeley.

"Without such a framework, investors do not know the conditions under which (asset buys) will occur or be unwound, which undercuts the efficacy of policy targeted at long-term asset values," the authors write.

Minutes from the Fed's July meeting, released on Wednesday, suggested policymakers had already considered such a step but, for now, decided against it.

"The Committee also considered whether to add more information concerning the contingent outlook for asset purchases to the policy statement, but judged that doing so might prompt an unwarranted shift in market expectations regarding asset purchases," the minutes said.

The authors of the study say the effects of the U.S. central bank's asset purchases, which began after the Fed had already brought official interest rates down in late 2008, are much narrower than policymakers' had foreseen.

Predictably, current and former Fed officials took issue with the findings. James Bullard, president of the St. Louis Fed, said the authors' focus on market impact immediately following policy announcements was misleading.

"I just wanted to push back against this conclusion that you get an effect in one single market and then there's not that much (impact) over a variety of assets," Bullard said.

Donald Kohn, former Fed Vice Chair, was also skeptical.

"The findings do not comport very well with the experience of the last couple of months," said Kohn.

Another former Fed vice chair, Alan Blinder, was even more blunt regarding the idea that Treasury sales would not have a major market impact: "You don't want to retract that given what happened recently?

U.S. Treasury 10-year note yields have risen sharply in the last two months to two-year highs above 2.80 percent following hints from the central bank that it may begin winding down its asset-buying stimulus program, also known as quantitative easing.

NARROW IMPACT

In particular, Fed Chairman Ben Bernanke and others have argued that asset purchases work by taking safe assets out of the market and therefore forcing cautious investors to take more risk. In official parlance, this is known as the "portfolio balance effect," affecting rates in markets well beyond those targeted by the Fed.

The impact of asset buying is a lot narrower than Fed officials contend, according to the authors of the paper.

"It does not, as the Fed proposes, work through broad channels such as affecting the term premium on all long-term bonds," the paper finds.

Instead, mortgage-buying has been more effective because, by targeting a specific sector that was under duress, Fed officials have been able to create scarcity of supply in the mortgage market, leading prices - and therefore credit availability - to rise.

"We find that (mortgage purchases) are more economically beneficial than Treasury (buying)," the authors write.

Recently, Fed officials have worried excess risk-taking may have gone a step too far, potentially leading to dangerous asset bubbles - hence all the talk of a ‘tapering' in quantitative easing.

In response to the worst recession in generations, the Fed has left official rates effectively at zero for over four years, and is on track to buy over $3 trillion in assets in an effort to support still-weak growth.

The U.S. economy expanded at an annualized 1.7 percent rate in the second quarter, while the jobless rate remains at an elevated 7.4 percent.

(Editing by Chris Reese and Tim Dobbyn)

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Fed should focus on mortgage buys, sell Treasuries: study

JACKSON HOLE, Wyoming | Fri Aug 23, 2013 11:02am EDT

JACKSON HOLE, Wyoming (Reuters) - The Federal Reserve should concentrate its unconventional monetary stimulus on mortgage asset purchases, according to a new study released on Friday, ditching Treasury bond buys which the authors say have not had much of an effect.

Presented at the Kansas City Fed's annual Jackson Hole conference, the paper argues rather controversially that the central bank should begin its exit strategy by selling Treasuries, something that is hard to conceive given the recent speedy selloff in government bonds.

The absence of concrete guidance as to the goal of asset purchases, which has been vaguely defined as aimed toward substantial improvement in the outlook for the labor market, neutralizes their impact and complicates an eventual exit, according to the paper's authors, Arvind Krishnamurthy of Northwestern and Annette Vissing-Jorgensen of Berkeley.

"Without such a framework, investors do not know the conditions under which (asset buys) will occur or be unwound, which undercuts the efficacy of policy targeted at long-term asset values," the authors write.

Minutes from the Fed's July meeting, released on Wednesday, suggested policymakers had already considered such a step but, for now, decided against it.

"The Committee also considered whether to add more information concerning the contingent outlook for asset purchases to the policy statement, but judged that doing so might prompt an unwarranted shift in market expectations regarding asset purchases," the minutes said.

The effects of the U.S. central bank's asset purchases, which began after the Fed had already brought official interest rates down in late 2008, are much narrower than policymakers' had foreseen, they say.

In particular, Fed Chairman Ben Bernanke and others have argued that asset purchases work by taking safe assets out of the market and therefore forcing cautious investors to take more risk. In official parlance, this is known as the "portfolio balance effect," affecting rates in markets well beyond those targeted by the Fed.

The impact of asset buying is a lot narrower than Fed officials contend, according to the authors of the paper.

"It does not, as the Fed proposes, work through broad channels such as affecting the term premium on all long-term bonds," the paper finds.

Instead, mortgage-buying has been more effective because, by targeting a specific sector that was under duress, Fed officials have been able to create scarcity of supply in the mortgage market, leading prices - and therefore credit availability - to rise.

"We find that (mortgage purchases) are more economically beneficial than Treasury (buying)," the authors write.

Recently, Fed officials have worried excess risk-taking may have gone a step too far, potentially leading to dangerous asset bubbles - hence all the talk of a ‘tapering' in quantitative easing.

In response to the worst recession in generations, the Fed has left official rates effectively at zero for over four years, and is on track to buy over $3 trillion in assets in an effort to support still-weak growth.

The U.S. economy expanded at an annualized 1.7 percent rate in the second quarter, while the jobless rate remains at an elevated 7.4 percent.

(Reporting By Pedro Nicolaci da Costa; Editing by Chris Reese)

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