REUTERS/Win McNameeFormer U.S. Treasury Secretary Timothy Geithner
Good morning! Here’s what you need to know.
- Asian markets were mostly higher. Hong Kong’s Hang Seng gained 2.73%, while the Shanghai Composite climbed 2.9%. Japan’s Nikkei closed flat. European markets were higher across the board, led by Germany’s DAX at +0.51%. U.S. futures are also pointing higher.
- The big gains among Chinese stocks came as markets digested announcements from Friday’s Third Plenum meeting that the Party would ease its “one-child” policy and begin phasing out state-controlled prices. The FT’s Josh Noble quotes Dong Tao, chief regional economist at Credit Suisse, as saying the reforms are the “the most comprehensive and ambitious” in the history of Communist China. But analysts are also wary about the equity gains, noting many companies’ profits are tied to sectors benefiting from price setting. Anyway, Chinese home price growth also accelerated in October.
- The Wall Street Journal’s Ryan Dezember reports former Treasury Secretary Timothy Geithner will join PE firm Warbug Pincus. He will serve as managing director and president, ‘not the kind of figurehead or advisory positions that public-sector figures often land after government stints,” Dezember said.
- Larry Summers’ speech a week ago on monetary policy at an IMF conference is slowly trickling through to the mainstream, as people realise it’s one of the most important of the post-recession era. As BI’s Danny Vinik explains, the “natural” interest rate, or the rate at which investment and savings bring about full employment, is now negative. The Fed cannot cut the nominal rate to below zero because people will begin hoarding money, which is why it instead began its massive bond-buying program. But that still hasn’t turned the natural rate positive. This is called the “zero lower bound” problem. Summers sees two implications of this: first, in the unlikely event another economic crisis hit, the Fed basically has no more tools at its disposal to address it. More profoundly, it’s possible the U.S. economy may actually need bubbles to grow and escape the “zero lower bound,” and that this has actually been the case for at least 30 years.
- The National Association of Home Builders releases its housing market index at 10 am. Consensus is for no change from the previous reading of 55. Four different Fed officials speak today.
- In less than 48 hours, Bitcoin prices blew through $US500 and now stand at $US608 on the Mt. Gox exchange.
- UK household finances deteriorated at the fastest rate in seven months in November, a survey showed, “highlighting the underlying fragility of the recovering economy,” Marketwatch’s Ilona Billington wrote. Weak pay growth and rising inflation expectations were seen as the main culprits for the -220 bps decline to a 38.8 reading.
- EADS and Boeing are both up more than 3% this morning after Gulf airlines went nuts on the opening day of the Dubai Airshow, dropping $US100 billion in the first 15 minutes. Emirates airline and Qatar Airways ordered 200 of Boeing’s newly re-launched 777. Emirates also inked a deal with Airbus for 50 of the world’s largest planes, the A380 superjumbo. “The rapid burst of dealmaking captured both the frenzy of business activity in the region and the ambition, shared by Gulf states, to diversify their economies away from energy wealth,” Reuters’ Praveen Menon and Tim Hepher said.
- Salesforce.com ($0.09/share expected), Urban Outfitters ($0.45/share expected), and Tyson Foods ($0.70/share expected) announce earnings today.
- The Fed is looking for any sign of inflation to get it out of this predicament, and UBS’ Maury Harris says he thinks he sees one on the horizon. In a new note, he writes, “[Personal consumption expenditure] deceleration has been the result of sharp drops in medical goods, health care services and financial services inflation. Combined, these account for almost all the deceleration witnessed over the last year. However, these now seem to be showing signs of re-acceleration. From June to September, the 3-month annualized rate of change for medical goods inflation has jumped from -0.4% to +4.8%, health care services have risen from -0.5% to +1.3%, and financial services inflation has bounced from +0.2% to +2.6%. We expect core PCE inflation will end 2014 at 1.9%, almost on the FOMC’s target.”