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?

Metrics: Domestic and Foreign

Highlights from around the world (well, from Europe anyway) and around the corner.

In Europe, Germany reported it's December 2010 unemployment rate, which remains unchanged at 7.5% Great Britain's PMI Manufacturing Index beat expectations by rising 30 bps from November to finish at 58.3 (the consensus expectation had been only 57.0). Italy's CPI rose to finish at a 0.4% increase for December (making a 1.9% increase in consumer prices for 2010). Finally, the European Union has reported its annual inflation rate, which was expected to come in at 2.1% for 2010 (up 20 bps from 2009). The actual figure is 2.2% which, while worse than expected, is not terrible.

All told, the news ranged from good (German unemployment and Great Britain's Manufacturing Index) to tolerable (EU inflation) to "bad but who cares" (Italy's CPI[1]). It's not particularly surprising that the FTSE 100 is up 2.21%, the DAX is up 0.22%, and the CAC 40 is up 0.65% on the news[2].

Winging our way over the North Pole (because, really, we usually take the Atlantic route and I'm bored with it), we have a few measures coming up in the US. Factory Orders are due out at 10 AM EST - a moderate market mover because it gives a second look at the productivity of the US manufacturing sector.. For November expectations are, in a word, bleak. October saw a 0.9% decrease in factory orders, and November is expected to be absolutely flat (a 0.0% increase). At some point today we're also expecting the Domestic Vehicle Sales (tracking sales of domestic-made cars[3], which is expected to rise 100,000 to net sales of 9.2 million for December.

Finally, the FOMC minutes are due out at 2:00 PM EST. Look for such surprises as the Fed being concerned about inflation but still expressing a willingness to keep monetary policy loose to stimulate GDP, an overall consensus to leave the target rate for the federal funds rate at 0 to 1/4 percent, and for Thomas Hoenig to vote against the policy because he's concerned about the loose money policy promoting high future inflation.

[1] They're one of the PIIGS, and has had its fair share of troubling the market anyway. It's going to take more than a 40 bps CPI increase to make European traders flinch these days.

[2] As of 8:21 AM EST. Actual numbers are subject to change without warning.

[3] No idea yet if this includes say, Toyota, which has a large factory complex in Kentucky. Or if it includes say, GM or Ford, whose vehicles are only an average of 70% domestic parts. Do we prorate?

Fed Bearish On 2011 & Insider Trading Probes Continue

Let's take a break from the latest round of North Korean Crazy [1] and, instead, look at the US and the sort of domestic crazy we can get up to.
First off, it turns out that the Federal Reserve is in the process of downgrading the future. They had an unscheduled video conference meeting on 10/15 and a regular meeting back 11/2-11/3.

You can read the minutes at http://www.federalreserve.gov/monetarypolicy/fomcminutes20101103.htm, but here's the highlights. They've revised their 2011 predictions for GDP downwards from between 3.5% and 4.2% to between 3.0% and 3.6%. They're also expecting unemployment to remain near 9.0% through most of 2011 and still be over 8.0% by the end of 2012. So not much good news there.

If you're following the excitement over the insider trading probes, there are some new developments. Janus Capital Group and Wellington Management Co have been asked for information related to the insider trading investigations that made the news on Sunday and Monday. Wellington has been asked for documents from "federal officials". Janus has filed a form 8-K (you can read it at http://www.sec.gov/Archives/edgar/data/1065865/000110465910059711/a10-21753_18k.htm) to cover their Regulation FD Disclosures. The filing states: "Janus Capital Group Inc. ("Janus") has received an inquiry regarding the recently disclosed insider trading investigation on Wall Street calling for general information and intends to cooperate fully with that inquiry. Janus does not intend to provide any further updates concerning this matter unless and until required by applicable law."

The Wall Street Journal reports that MFS Investment Management of Boston has also been contacted, but they have declined comment.

"Fed pondered radical steps amid weaker outlook" (http://www.reuters.com/article/idUSTRE6AI2AQ20101123)

"Fund firms asked for documents by authorities" (http://www.reuters.com/article/idUSTRE6AL4DT20101123)

[1] With their number one hit single "Shellin' UR Hood"