The FTSE remains in the 5000 to 5240 range with a near term test of the upside likely. A break of 5240 would see the FTSE extend its third wave advance; next target 5500.
The price action overnight, particularly in Chinese stocks, has been noticeable. Despite the array of positive economic data released overnight, investors took more note of the decline in new loans, a tentative sign of tightening within the Chinese economy. This would suggest that the good news that could see forecasts for growth exceed 10% during the next quarter coupled with China overtaking Japan as the second biggest economy has already been largely discounted.
With exit policies still the key concern for investors the raft of US Federal Reserve speakers yesterday should have provided some comfort. There remains little sign that the US will exit its accommodative strategy anytime soon as they continue to battle reducing unemployment and deflationary pressures. However, another and potentially a more severe threat to the Federal Reserve has come in the form Senator Dodd’s 1,136 page proposal on financial regulation overhaul.
Under the Dodd proposal, according to Bloomberg, the Fed would lose its bank-supervision role to a new Financial Institutions Regulatory Administration. Its consumer oversight role would go to a new Consumer Financial Protection Agency. An Agency for Financial Stability would have broad powers to protect the economy from financial risks. Dodd would leave the Fed with monetary policy as its main responsibility but Congress would look to influence the selection of Fed presidents.
If, and it is a big if, this proposal passed its way into law then the Fed’s ability to act to crises, such as making emergency loans to companies would be restrained; which in a scenario such as 2008 would have slowed down, at best, the bailout of Bear Stearns and AIG. Arguably, more significantly would be the view that the Fed’s independence had been comprised and that politicians could interfere with interest rate decisions if they disagreed with the central bank stance. So far, the markets reaction to this proposal has been rather muted, but if it looked like the Fed’s independence would be compromised going forward this would probably send US equities, bonds and the US dollar tumbling.
Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:
Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.
