Anthony Peters
SwissInvest strategist
I wouldn’t say that they exactly knocked the cover off the ball but they were solid without looking as though they would be poked at for being beset with aberrations. The White House has been pretty seriously bereft of good news for the past few weeks but I can see President O’Bama sitting back in the Oval Office and smiling quietly.
There wasn’t really anything in the release which could spoil the party although I do find the fall in the unemployment rate from 7.3% to 7.0% on the back of the creation of 203,000 jobs a bit hard to swallow but I guess I don’t know enough about the vagaries of US Labor Department statistics to question it.
…the bulk is still happy to peg March as the most likely date for the process to begin.
Anyhow, the trend is clear and I see no reason in wasting time trying to catch flies in order to stick them in the ointment. Having chosen to take the headlines at face value, the next question which instantly imposes itself is what the Federal Reserve in general and its Open Market Committee in particular will make of this.
The primary dealer community has expressed its view in that only four of the twenty one openly expect tapering to begin this month although the bulk is still happy to peg March as the most likely date for the process to begin. The Fed has not had its finest hour when it comes to expectations management in the tapering space and although I’d be happier to see it begin sooner rather than later – punch bowls, parties and all that jazz – it has created a bit of a credibility gap with investors which it need to bridge and acting against perceived consensus would not be a good idea at this point in time, whether right or wrong.
That, at least, was the view taken by markets on Friday where the Dow rallied 1.26%, taking it back up to 16,020 pts, wiping out all the week’s losses and leaving it with the fifth highest close in its history.
Fear of a withdrawal of stimulus? Not many, Benny.
Budget bugbear
However, none of this resolves any of the budgetary matters which plagues US government finance for all of 2013 and which will most probably find on lasting solution in 2014. The national debt is now estimated to above $17 trn, not a trifling figure at the best of times and although the rate of increase has slowed significantly, it continues to grow apace. This extrapolates at around $54,000 per citizen but near on $150,000 per tax-payer.
I think it is fair to suggest that the fear of tapering is now fading and even bond markets need not run scared for, as tax receipts improve, so issuance by the Treasury should diminish and the speed of tapering will no doubt to be carefully geared accordingly. The Fed will do all in its power to maintain equilibrium. Bring on March!
Meanwhile, the politicians will have their work cut out as the Continuing Resolution draws to an end on January 15th. They are racing, if racing at a snail’s pace can be deemed to be racing, to bring about a temporary extension to this temporary fix. They remind me of the duchess who insisted that she wanted to learn a French but declared that she didn’t want to have to study and learn all the boring the grammar at the same time.
Early news today is that the Chinese trade surplus is off to the races again while Abenomics has tripped over yet another hurdle as Q3 GDP final was revised down to 1.1% from the preliminary 1.6% and a far cry from the more hearty 1.9% in Q2. The implied deflator remained steadfastly at -0.3%.
In truth, there was next to nothing which would warm the heart of the fans of Prime Minister Shinzo Abe’s race for growth but plenty which would have the sceptics drumming their fingers on the table. I am drumming away. I was reminded on Saturday while talking on the wireless about Chancellor Osborne’s Autumn Statement of that bonmot, ascribed like many, many good bonmots to Winston Churchill, “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” I can only conclude that the same must apply to borrowing and spending.
