Economic News

Market Talk: Taper Arrives, EU Downgraded

It’s finally here–sort of. In about as wishy-washy a manner as possible Fed Chair Ben Bernanke executed a slight cut back in his bond buying program. As he makes room for the new chair, Janet Yellen, Bernanke decide to go out with a bit of a bang. After five years of ever easier policies, he announce that his $85 billion a month plan will be cut back to $75 billion a month. While a cynic might argue that $75 billion in out-of-thin-air bond buying is outrageous, most people concede that it is at least going in the right direction. Of course, The Fed made sure to emphasize that the $10 billion cut back was little more than an experiment to see how the economy and markets react and at the slightest hint of trouble they were ready to go right back to the previous buyback number.

The markets at first reacted positively to the news as stocks surged to another high. Bonds were even muted as the ten year note was stable. Futures are higher as I write this and bonds are holding flat, so at the moment at least it looks like Bernanke’s move has been a success. Of course, bonds have already had a rough patch in anticipation of this move and stock traders were just happy to hear that the Fed’s move is little more than window dressing for Bernanke’s exit.

Flying under the radar of late has been the European markets. Today, though their continuing troubles surfaced by way of the S&P. Apparently the squabbling is becoming a tad worrisome to the ratings agency:

In our view, EU budgetary negotiations have become more contentious, signaling what we consider to be rising risks to the support of the EU from some member states,” the agency said. “We consider that the EU’s financial arrangements have deteriorated, and that cohesion among members has lessened.”

EU downgrading, and flying under radarS&P lowered its long-term issuer credit rating on the EU to AA+ from Triple-A, with a stable outlook, while affirming the short-term rating at A-1+.

Well, I guess good news can’t last for long. Best to climb that “wall of worry” that Wall Streeters love to cite. It may pay to keep an eye on Europe though. Those rumors of a an exit from the EU (European Union) have started up again after a two year break and some of the fundamentals of the member countries are nothing to write home about either.

There is not much in the way of data today outside of a third quarter GDP revision (expected to rise .1%). And with a sure-to-be quiet week during the Christmas holiday, Friday may be the highest volume day for a while. And while some people will be doing their tax-loss selling during these last few sessions of the year, others have already done so and are scouring the landscape for some good buys. The last few years have seen an almost pre-January effect as investors try to predict the winners among the beaten down 2013 losers. Speaking of losing bets for 2013, gold has been struggling further as the taper news has sunk the popular metal to new lows. Of course, it’s still way up in the medium and long term, but there is no denying that 2013 was a tough one for gold.

That will do it for this week. Enjoy your weekend. As I will not be writing a PrimeRates column until next Friday, enjoy your holidays.

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