In light of the recent wave of weak economic data, speculation over QE3 has escalated, and the markets will be keeping a close eye out for any of the Fed Chairman’s thoughts on the possibility of a third round of money printing.
In anticipation of Bernanke’s comments, Macquarie Capital Markets team put out a note to clients this morning with its expectations for the Fed Chairman’s speech:
There may be a shift to more dovishness in his tone – towards keeping rates lower for even longer, but it’s unlikely a QE3 is tabled as a near-term possibility at this point for a few reasons:
(i) Monetary policy works with a lag and QE2 still has not been completed;
(ii) Fighting deflation was a large part of the motivation behind QE2 and that is not a risk in the US at this point;
(iii) To maintain the Fed’s credibility, the standard of economic weakness required for a QE3 will be high (i.e. not just 1 month or 1 quarter of weakness).
Stocks open higher ahead of Bernanke speech
Stocks opened higher after four straight days of losses Tuesday. Traders are hoping that Federal Reserve chairman Ben Bernanke will indicate in remarks later in the day that any increase in interest rates is a long way off.
The Dow Jones industrial average rose 65 points, or 0.5 percent, to 12,155 in morning trading. The Standard & Poor's 500 index rose 8, or 0.6 percent, to 1,294. The Nasdaq composite rose 15, or 0.6 percent, to 2,717.
The Fed has said it will wind down its $600 billion bond-buying program later this month. However a string of disappointing economic reports in recent weeks has renewed speculation that the Fed might extend the program or delay any increase in interest rates well into next year. Before the latest indications that the economy was losing momentum, economists had expected that the Fed might begin raising rates as soon as the end of this year to head off inflation.
Banks recovered some of their recent losses. JPMorgan Chase & Co. rose 1 percent to $40.87 and Bank of America Corp. rose 1 percent to $10.94. Bank stocks took a hit Monday after a Federal Reserve board member indicated in a speech that banks might have to increase the amount of money they keep on hand to cover potential losses.
International Paper Co. rose 1.7 percent after smaller rival Temple-Inland rejected a takeover bid for $3.3 billion in cash.
Stocks plunged over the last four days as the U.S. economic recovery appeared to weaken and Greece teetered on the edge of default before receiving the latest installment of its emergency loan package.
The Dow fell 480 points in the four days through Monday, its biggest four-day loss in over a year and its longest losing streak since last August. The S&P 500 closed below 1,300 for the first time since March 23.
Oil prices fell toward $98 a barrel ahead of an OPEC meeting that could result in higher oil production. Rising oil prices have contributed to the recent stock sell-off. Oil has hovered around $100 a barrel since March. On Wednesday ministers from the 12 countries that make up the oil cartel OPEC will consider raising output levels. Producing more oil would ease the pressure on prices. For the latest updates PRESS CTR + D or visit Stock Market news Today
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