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Morning Notes For October 18th 2010 at Trader’s Narrative

Morning Notes For October 18th 2010

The following is a guest post by a buy-side analyst working in a US asset management firm. The author’s comments are in italics. I welcome your feedback in the comments:

  • Bernanke Sets a Focus on Inflation – Federal Reserve Chairman Bernanke’s speech Friday left little doubt that the central bank is preparing to unleash another round of quantitative easing. Bernanke said the central bank would “provide addi¬tional policy accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate.” Given the double mandate, and with both of these objectives moving in the wrong direction, the Fed will need to act. – Bloomberg
  • Dollar’s Weakness Against Euro Unlikely to Be Maintained – The dollar is unlikely to continue weakening in relation to the euro through the end of the year, as inves¬tors begin to pay more attention to signals of weakness coming from the euro area.

euro US cross Oct 2010
After hitting a four year low of 1.1877 on June 7, the euro has rallied over 19% versus the dollar. The falling dollar could become a concern if it becomes disorderly.

  • Memory of 1995 Treasuries Rally Spurs Debt Before Vote – Bond investors are looking back to the last time a Democratic president lost control of Congress and concluding, like then, that gridlock in Washington is good news for Treasuries. Just as Bill Clinton was forced to abandon spending initiatives after Republicans took over the House and Senate in the 1994 elections, President Barack Obama’s agenda may be constrained. – Bloomberg
  • The US as the new Japan – NYT article – “a growing number of economists are pointing to Japan as a dark vision of the future” for the US. “Just as inflation scarred a generation of Americans, deflation has left a deep imprint on the Japanese, breeding generational tensions and a culture of pessimism, fatalism and reduced expectations” – NYT
  • Fed’s Rosengren warns again of repeating the mistakes of Japan - “A policy of gradually adjusting monetary and fiscal policy, as conducted in Japan after deflation first occurred, may not be as effective as an active policy response taken before deflation has become embedded in the economy,” WSJ

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One Response to “Morning Notes For October 18th 2010”  

  1. 1 Charty

    Not sure I agree with USD making a comeback against the Euro, especially if we’re printing more dollars in a second round of quantitative easing.

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