German election aftermath, the apparent backpedaling on the federal Europe and the looming US government shutdown
are the main drivers right now. Italy's government looks like it could fall.
ECB's meeting next week will probably not do anything new, but might give further hints on a new LTRO, due later - if still needed at that point.
The Federal Reserve’s tapering is still
featured heavily in articles, but will remain on hold probably until at least
next December. Should the shutdown happen, even next Friday's unemployment report would perhaps not be published - effectively stopping the Fed from making informed decisions, and certainly pushing the tapering-date forward.
Previously on MoreLiver’s:
EUROPE
German election
reaction, French cultural exceptionalism, and is the UK right to challenge the cap on bankers’
bonuses?
Single Supervisor for European Banks? Still No
Cigar – WSJ
Britain – flushed by a
string of victories over Brussels’ regulatory reach – asked to postpone final
approval of the so-called Single Supervisory Mechanism…Negotiations on the
second leg of banking union — a single resolution mechanism — don’t look any
more straightforward.
Margins to save themselves, European edition – alphaville
/ FT
European stocks are no
longer cheap. Word reaches us from Morgan Stanley this morning that valuations
are starting to look “somewhat full”… But there is hope: margins.
Almost one third of Austrians could vote for
anti-euro parties – The
Telegraph
Austria is up with its national election on Sunday. Few people talk about the
Austrian elections, but they may contain a stark warning to those seeking to
press ahead with more eurozone integration – with or without the consent of
voters.
Tax hikes have reached
their limit.
DEBATE
The only uncertainty is why some cannot see
facts – Antonio
Fatas
In Front of Their Noses – Krugman
/ NYT
GERMANY
Charlemagne: Waiting for Angela – The
Economist
After a stunning
victory, Merkel needs to pick a partner to form a government – and thus she
depends on the opposition. Meanwhile, Europe is
waiting for her big decisions.
Merkel's potential coalition partners drag
their feet – euobserver
Merkel's Next Move – Foreign
Affairs
Will the Empress of
Austerity Bring the Socialists on Board?
Power Hungry – Foreign
Affairs
Will Angela Merkel
Complete Germany's Energy Revolution?
German September inflation below and not even
close to 2% - Merkelnomics
German election ended - return to EU issues – Danske
Bank (pdf)
EUROPEAN CENTRAL BANK
ECB Liquidity-Boost Urgency Seen Fading Even
on Cash Drop – BB
The need for a new
injection of cash into the euro area’s banking system may be fading as stress
in the region eases. Of 19 economists surveyed by Bloomberg News, 11 said
there’s no requirement for another long-term refinancing operation from the
Frankfurt-based central bank, even after excess cash in the region’s financial
system fell to the lowest level since December 2011.
ECB Preview: Still in the action zone – ING
(pdf)
Three factors are
still disturbing the ECB’s comfort zone: the Fed, higher money market rates, and
lacklustre credit growth. Words still seem to be the first line of defence to
shield the Eurozone from higher interest rates and a stronger euro. However,
the strategy of words without deeds could soon wear out. Consequently, we still
expect further ECB action in the next 6 months, with liquidity operations being
the preferred option.
ITALY
Italian government near collapse after budget
talks fail – Reuters
Italian Prime Minister
Enrico Letta failed to secure backing for a vital package of fiscal measures on
Friday as divisions with center-right partners in his fragile coalition took
the government to the brink of collapse.
Italian politics: Still a puppet master – The
Economist
Italian GDP Slumps Fastest Since 1861's
Unification – ZH
Italy: Report on the Observance of Standards and Codes – IMF
Italy: Financial System Stability Assessment – IMF
Italy: Selected Issues – IMF
Italy: 2013 Article IV Consultation – IMF
UNITED STATES
Looting the Pension Funds – Rolling
Stone
Matt Taibbi: All
across America, Wall Street is grabbing money meant for public workers
The meaning of Lehman – The Economist
FEDERAL
RESERVE
A Synopsis of Fedspeak – Tim
Duy’s Fed Watch
There is broad
support/willingness to start the tapering process as soon as the data
allows. In general, even the doves
believe that it is the stock, not flow, that matters, and at this point a small
taper will have little impact on the stock.
Earliest timing is December. If
the government shuts down, they might not even have an employment report for
the October meeting.
Fed doves make case for patience on tightening
policy – Reuters
The Federal Reserve
must be patient in deciding when to scale back bond purchases, top officials
said on Friday, with one arguing it could wait "years" to lift
interest rates and another suggesting it could tolerate inflation rising to 3
percent.
Fed May Not Start Taper Until January – WSJ
Fed’s Narayana Kocherlakota: A time of testing – The Big Picture
The good news is that,
with low inflation, the FOMC has considerable monetary policy capacity at its
disposal with which to address this problem. The FOMC’s test today is to figure
out how best to deploy this capacity. The answer lies in taking two steps. The
first step is to communicate that our goal is to accomplish a fast return to
maximal employment while keeping inflation close to, although possibly
temporarily above, the target of 2 percent. The second step is to do whatever
it takes, on an ongoing basis, to achieve that goal. A goal-oriented approach
to monetary policy greatly reduced inflation in the early 1980s. Adopting such
an approach in our own time would improve labor market outcomes.
A New Strategy for the Fed – Evan Soltas
What has interested me
is the Fed's apparent difficulty communicating the way it anticipates to
tighten monetary policy over the next five years conditional on economic
performance and outlook. To be fair, this isn't at all an easy task. A lot goes
into it.
Learning to Love the Fed Taper – WSJ
What if I were on the FOMC? – The Money Illusion
Don’t Cry for Me, Ben Bernanke – Project
Syndicate
Simon Johnson: The
Federal Reserve will decide on monetary policy for the US based primarily on US conditions. Economic
policymakers elsewhere who are pleading for a postponement of US monetary tightening should understand this
hard reality and prepare accordingly.
The Taper and Its Shadow – Project
Syndicate
Fed policymakers and
other North Atlantic central bankers who believe that further
extension of QE poses substantial risks need to explain exactly what those
risks are and why we need to guard against them now. If not – if the risks
compelling the end of QE are left vague – they will be unable to counter
investors’ belief that a taper today will mean a new path for interest rates
tomorrow.
Reaching for the pitchforks, bubble edition – alphaville
/ FT
News that US housing is turning frothy again, with San Francisco prices up 25 per cent over the last year, has Albert Edwards of Societe Generale reaching for the exclamation marks.
News that US housing is turning frothy again, with San Francisco prices up 25 per cent over the last year, has Albert Edwards of Societe Generale reaching for the exclamation marks.
When Bubbles Fail: Albert Edwards Explains What
Happens When The Fed Can No Longer Contain The Fury Of The "99%" – ZH
GOVERNMENT
SHUTDOWN / DEBT CEILING / DEFAULT
Jobs Report Could Be Released Even in Shutdown – WSJ
Government Shutdown Odds: 40%, Nomura Estimates – ZH
Credit Markets Signal Bigger Fear Of Treasury
Default Than In 2011 – ZH
Goldman Sachs: Why You Should Be Rooting For A
Government Shutdown – BI
Shutdown would make
raising the debt ceiling easier.
A shutdown of the U.S. government would reduce fourth-quarter
economic growth by as much as 1.4 percentage points depending on its length,
economists say, as government workers from park rangers to telephone receptionists
are furloughed.
Government shutdown looms as lawmakers feud – Reuters
President Barack Obama
sternly warned the Congress on Friday against a government shutdown on October
1 as lawmakers struggled to pass an emergency spending bill that Republicans
want to use to defund Obama's healthcare reform law.
Two can play at that suicidal game! – The
Economist
Barack Obama should
threaten to veto any increase in the debt ceiling unless Congress goes along
with his demands. This idea, though utterly dumb, has a formal logic to it.