News That May Move The Market Today

There's no major economic measures coming out today, so let's have a look at the news instead.

In an effort to prevent the yen from appreciating further, the Bank of Japan bought over $25 billion in US currency yesterday. This helped drive the yen back down to at least ¥81.83 to $1 and also increases the total number of yen in circulation, a goal consistent with the quantitative easing the BoJ has initiated. The G7 industrial nations have also agreed to intervene in the currency markets to help keep the yen from appreciating further by selling dollars, Canadian dollars, Euros, and so forth to Japan as needed.

Now, why are they doing this? Strong currency can be good for a nation, but it tends to restrict exports. Right now, Japan needs to bring currency into the country, and yen repatriation from selling internationally-held assets will only last so long. They will need to export goods and services, and the last thing they need is handicap their export quantities at a time when they need hard cash. (The counter-problem is inflation due to having too many yen in the marketplace, but the BoJ is confident they can soak that up when the time comes.) For some additional insight, have a look at this Reuters interview with Japanese deputy finance minister Fumihiko Igarashi, or these comments from various other Japanese officials.

Of course, the series of disasters plaguing Japan hasn't brought the troubles in the rest of the world to a halt. The United Nations has voted to approve the use of military force to prevent the Libyan government from fighting rebel forces in the newly-minted Libyan civil war. The vote was taken about 8 AM, and Reuters quotes French sources as saying that action could follow within hours. Even before the vote, Egypt's military government began shipping arms and ammunition to the rebels.

In the wake of the vote, CNN is now reporting that the Libyan government has decided on an immediate cease-fire in the civil war.

King Abdullah has, in an attempt to prevent protests and/or rebellion from breaking out in Saudi Arabia, ordered billions of dollars in handouts and government programs.

Monday, Saudi Arabia sent 1000 soldiers into Bahrain to assist the ruling monarchy in maintaining power[1]. The King of Bahrain, with that extra support decided to respond to weeks of protests by the nation's Shi'ite majority, by declaring a three-month "state of emergency" on Tuesday. This gives the defense ministry authority to impose curfews, disperse gatherings, evacuate areas, and use military force to break up protests.

[1] Interestingly enough, particularly in light of the US position regarding Libya, Secretary of State Clinton told Saudi Arabian Foreign Minister Prince Saud al-Faisal that "our advice to all sides is that they must take steps now to negotiate toward a political resolution".

FOMC Minutes. Nothing To - Wait, Is That A QE3?

The Federal Open Market Committee minutes are out for December. Pull up the statement or the actual text of the minutes, and join me in breathless anticipation as we see what the Masters of the Economy have said. In their opinion:

1. Economic activity is strengthening, and the labor market is deteriorating less swiftly.
2. Household spending is increasing at a modest rate, but is held back by the weak labor market (see 1 above), "modest" income growth, lower housing wealth, and tight credit.
3. Business spending is picking up, but investment in structures is still down and employers remain reluctant to add to payrolls (see 1 above). Inventory and sales are beginning to match up, though.
4. Bank lending continues to constrict, but financial market conditions remain supportive of economic growth.
5. The pace of economic recovery is likely to be moderate for a time.
6. Inflation is likely to be subdued for some time.
7. The target range for the federal funds rate will remain at 0.00% to 0.25%.
8. The Federal Reserve will begin purchasing $1.25 trillion in agency mortgage-backed securities and $175 billion of agency debt. It is anticipated that all of these transactions will be executed by the end of Q1 2011.
9. The Federal Reserve will be shutting down a bunch of funding and liquidity programs, and will be allowing the liquidity swap arrangements between itself and other (international) Central Banks to expire on 2/1.
10. Thomas Hoenig voted against the policy action, arguing that economic and financial conditions have changed enough to no longer justify the extraordinarily low federal funds rate.

A lot of administrative stuff there. Items 7 and 10 are no surprise. Item 9 is a mild surprise (it does seem to indicate a belief that the worst is over). Item 8, though...

Item 8.

The purchase of $1.25 trillion in agency mortgage-backed securities, and $175 billion of agency debt. QE3, anyone?

Quantitative Easing Explained

This video, which you've probably seen by now, takes some political cheap shots. But I still find it hysterical.