- FOMC minutes indicate that the Fed is taking baby steps towards an Evans-style rule.
- EU says that there will be no additional austerity requirements for Spain in 2012-2013.
- Focus today on euro area Q3 GDP figures, UK retail sales and US regional PMIs.
The FOMC minutes showed that the Fed is moving closer to an Evans-style rule. There is still work to be done, but we expect a new framework for communication to be announced early next year. The minutes also stated that additional QE remains likely after the end of Operation Twist as is also the general expectation in the market, see Fed minutes: (more) talk about qualitative thresholds, 13 November.
Fitch has revised its outlook on Ireland to stable from negative and affirmed the rating at BBB+. Fitch writes: "The affirmation and revision of the Outlook to Stable from Negative reflects Ireland's continued progress with its fiscal consolidation, external adjustment and economic recovery, as well as the sovereign's improved financing options." Fitch points to the fact that "Ireland has met all the quarterly fiscal targets of the programme," see full Fitch statement. Ireland will sell EUR500mn T-bills today.
Olli Rehn yesterday gave a judgement on progress in Spain. Rehn made it clear that for 2012 and 2013 there will not be any additional austerity requirements from the European Commission. He said that "broadly speaking Spain is on track." This seems to be an acceptance that Spain will miss its current nominal deficit targets of 6.3% and 4.5% of GDP in 2012 and 2013. The Commission is more focused on the improvement in structural measures. Rehn said: "the Commission stands ready to act if there is a request (from Spain)," see also FT.
It was announced this morning that Xi Jinping will be the next leader of the Communist Party of China (CPC), as expected. It looks like a victory for the conservative Jiang Zemin fraction that will maintain a majority in the powerful Politburo Standing Committee. This will limit Jinping’s manoeuvring room as was the case with his predecessor. The next five years will be a transitional phase in China where economic reforms will be continued, but we are unlikely to see major political reforms. It will be relatively easy to reach a consensus on economic policy but within the CPC there are disagreements about the need for political reforms. Hence, there is the risk of increasing political instability in China.
The negative sentiment continued overnight. US equities dropped to the lowest level in three months with S&P500 down 1.4% overnight. While Asian stocks are trading in negative territory, Nikkei is up by 1.4% boosted by a statement from Japan’s opposition leader Abe that calls for unlimited Bank of Japan easing until deflation is defeated. Abe, who is likely to become the next Premier, wants Bank of Japan’s benchmark rate to be cut to zero or lower. In FX markets USD/JPY jumped to above 80.6 – the highest level since April.
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