Economic news, good or bad, doesn’t matter this morning as the two-day Federal Reserve Open Market Committee meeting begins today. This is Chairman Ben Bernanke’s last meeting before stepping down as Fed leader, and is taking place when the pressures for the Fed to reduce its “money printing” have never been higher.
As a result, the DXY dollar index is in positive territory, with the dollar near 5-year highs versus the yen. The euro, despite better than expected economic news out of Germany, is marginally lower. Precious metals were moderately lower, with a modest sell-off at the New York open being negated about an hour later. Palladium is the underperformer this morning, in volatile trading.
In economic news, the ZEW business sentiment survey blew away expectations of a print at 55, clocking in at 62.0 from last month’s 54.6. Composite EU inflation was reported at a 0.9% annual rate. This wasn’t enough to boost Euro stocks, as everyone heads to the sidelines ahead of the FOMC taper verdict tomorrow.
In Tokyo, the Nikkei took advantage of a falling yen’s support for exporters to regain yesterday’s losses, up 0.8%. The Hang Seng and mainland Chinese indexes were lower, again because of the FOMC meeting.
US inflation came in flat last month, which may or may not be used as an excuse to not taper by the Fed. More economists are saying that the bond-buying from the big banks has not improved the wider economy, and will not in future, until the Fed lowers the excess funds rate that it pays those same banks for parking the money from the bond sales back at the Fed. The almost $4 trillion the Fed has “invented” to buy these bonds and mortgage-backed securities from the secondary market has for the most part ended up in the excess funds account, or in the stock market.
Another thing that may stay Bernanke’s hand in his last meeting is the rumor that the Senate doesn’t have the votes to pass the House’s bipartisan budget agreement. Since Bernanke isn’t likely to instigate a major policy shift as his last act as Chairman, we will probably hear a lot of talk at the press conference tomorrow, and the market will see yet another month of uncertainty over the Fed’s plans.
In a possible plus for gold, rumors are circulating that the Indian government may relax import restrictions on gold next month. Unemployment in the jewelry sector has reached crisis proportions, and hundreds of tons of gold is estimated to have been smuggled into the country, depriving the government of badly needed revenue. The ruling Congress Party has lost a number of recent local elections, and national elections are due in May. However, yesterday’s anonymous sources have now been countered by other anonymous sources saying that there are no plans for lifting import restrictions, despite a notable decrease in the nation’s current account deficit.