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June 2013

Fed Members Clarified Bernanke Statement

This week, eight top Fed officials spoke in an effort to clarify the statement of Fed Chairman Bernanke at the post-FOMC decision press conference on June 19th and to reassure panicky investors after the sell off on both equities and bonds’ markets.

 

The overall tone was to warn markets for misunderstanding the chairman’s message and to emphasize that while tapering of asset purchases will likely begin soon and will only reduces the rate of stimulus addition, interest rates were a separate issue and would remain low for a very long period.

 

More from Fed members’ speeches:

 

Fed’s Kocherlakota (dove, FOMC alternate) / Believe it will take another 2 years for US unemployment to drop to 5.5% once it has reached 6.5%. May be appropriate to keep rates near zero even after unemployment falls to 5.5%.

 

Fed’s Fisher (hawk, FOMC alternate) / Not in favor of ending stimulus immediately; “can’t go from wild turkey to cold turkey.” Exit strategy is still way out in the future. The word ‘exit’ does not work for the Fed now, the exit will be way out in the future.

 

Fed’s Lacker (hawk, FOMC non-voter) / Low inflation expected to be transitory, markets may have gotten a bit ahead of themselves with respect to tapering response; Not “anywhere near” reducing balance sheet size.

 

Fed’s Dudley (dove, FOMC voter) / Initial rate hikes are a long way off, could arrive well after 6.5% unemployment level is crossed; economy may diverge significantly from FOMC forecast.

 

Fed’s Powell (moderate, FOMC voter) / Market expectations for a 2014 rate increase are out of line with the Fed’s view, it is most likely that asset purchases will continue for some time.

 

Fed’s Lockhart (moderate, FOMC non-voter) / Interest rate increases are likely to come sometime in 2015.

 

Fed’s Stein (dove, FOMC voter) / The Fed has said nothing that suggests it has plans to change interest rates.

 

Fed’s Williams (dove, FOMC non-voter) / Cutting bond purchases does not change promise to keep rates low until unemployment falls to 6.5%.

 

The surge in bond yields that began in early May and accelerated after Bernanke’s June 19th press conference appears to have topped out for the moment after Fed members’ speeches. The yield on the US 10-year hit a nearly two-year high of 2.66% on Monday, but has backed off this level to trade as low as 2.48%.
 

Analysts note that other bond markets have been even more volatile. For instance the Barclays US Corporate High Yield Index briefly topped 7% early in the week – up from 5% on May 8th.
 

In the week ended June 26, according to FT, bruised by the first widespread losses for bondholders, investors pulled $8.6bn from US bond funds, contributing to the worst four-week streak since the depths of the financial crisis.

US June Auto Sales Could Reach 65-Month High

Automakers will release June vehicle sales next Tuesday (July 2) and currently, analysts estimate June sales to be at or above 15.5 million (seasonally adjusted and annualized). It will represent the highest level since 65 months.

 

Here are some forecasts from specialists:

 

1/Edmunds: June Car Sales Cap a Strong First Half of 2013 for the Auto Industry, Reports Edmunds.com

 

Edmunds.com, the premier resource for car shopping and automotive information, forecasts that 1,365,496 new cars and trucks will be sold in the U.S. in June for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 15.5 million light vehicles. The projected sales will be a 5.3 percent decrease from May, but a 6.3 percent increase from June 2012. This month’s sales performance is expected deliver the biggest volume and SAAR for the month of June since 2007.
 
“Within the last month we saw a slowing stock market and a stalled unemployment recovery, but the automotive market continues to shine through it all,” says Edmunds.com Senior Analyst Jessica Caldwell. “The first half of 2013 was every bit as strong as the auto industry could expect at the beginning of the year, and there’s no reason why the next six months can’t maintain the same momentum.”

 

2/TrueCar: June 2013 New Car Sales Expected to Be Up Nearly Eight Percent According to TrueCar; June 2013 SAAR at 15.7M, Highest June SAAR Since 2007

 

“Despite the lackluster performance in financial markets in June, new vehicle sales reached their highest levels in six years – yet more proof that the recent surge in consumer demand is real and not going anywhere,” said Jesse Toprak, senior analyst for TrueCar.com. “The better news for the automakers is that they are back to selling nearly 16 million units a year collectively while spending less on incentives, thanks to the best selection of vehicles ever in their showrooms; product is the king once again.”

 

3/ JD Power: New-Vehicle Retail Sales Are Heating Up with the Start of the Summer Selling Season
 

LMC Automotive continues to hold the outlook for total light-vehicle sales in 2013 at 15.4 million units, but has increased its forecast for retail light-vehicle sales to 12.6 million units from 12.5 million units, as retail sales growth expands.
 
“There is little question that the automotive market has strong momentum as we close out the first half of 2013,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive. “Looking forward, all the key fundamentals are in alignment to continue the current growth trend, with production capacity limitations being the only major visible risk.”

 

4/ Wards: June Sales Rate Could Reach 67-Month High
 

Growing consumer confidence, pent-up demand and healthy inventories should help lift the U.S. light-vehicle market to a seasonally adjusted annual sales rate of 15.8 million units in June, WardsAuto forecasts.
 
That would mark the highest monthly rate since November 2007, when the SAAR topped 16 million units for the last time prior to the recession.

 

5/ Kelley Blue Book: Sees U.S. New Car Sales Up 6% in June
 

Sales of new cars in the U.S. are expected to jump 6% in June from a year earlier, according to Kelley Blue Book.
 
The car-information provider estimated June’s sales volume at 1.36 million vehicles, up from 1.29 million a year ago.
 
The June forecast translates into a seasonally adjusted annualized rate of 15.5 million, the highest SAAR since November 2012. There was one fewer selling day this June compared with last year.

Euro Leaders Will Try to Secure Recovery after Strong Data Coming from France and Germany

On Friday, European leaders agreed on new steps to fight youth unemployment and promote lending to SMEs.

 

European leaders agreed to deploy €8 billion (up from €6 billion) to create jobs for young people and frontload the initiative for the next two years, starting from January 2014:

 

More from China Daily:

 

Top leaders of the European Union (EU) have agreed on an 8-billion-euro youth employment initiative, aimed at solving the urgent issue of youth unemployment as well as boosting small and medium-sized enterprises.
 
EU leaders, who are here attending a two-day summit, decided to scale up the funding for the initiative from 6 billion to 8 billion euros and “frontload” the initiative for the next two instead of seven years, starting from January 2014, European Council President Herman Van Rompuy said at a press conference in the wee hours of Friday.
 
Many EU member states would count on the initiative to help provide a job, training or apprenticeship to young people within four months after leaving school or becoming jobless.

 

Leaders also approved plans for the European Investment Bank to lend hundreds of billions of euros to small and medium-sized enterprises (SMEs) particularly in southern EU states. The communique urges the EIB to implement its plan to increase its lending activity in the EU by 50% (€150 billion) over 2013-2015.

 

More from Kathimerini:

 

According to a draft of the summit’s conclusions seen by Kathimerini, European leaders are to invite the EIB to accelerate procedures for the provision of 150 billion euros in the form of loans to European economies over the next two years. Of these funds, 100 billion euros would go toward funding SMEs.

 

At the same time data coming from France and Germany showed a rebound in domestic consumption in May and suggest that European growth could stabilize in Q2:

 

More from Reuters:

 

French consumers spent significantly more than economists had expected in May despite concerns about surging unemployment, data showed on Friday, rekindling some hopes that France might be slowly emerging from recession.
 
However, although the risk of prolonged recession may be receding, activity remains far too weak in the euro zone’s second-biggest economy for a rapid recovery, economists said.
 
The INSEE statistics agency reported that household spending rose 0.5 percent over the month, beating by a wide margin the average forecast given by economists of a 0.1 percent fall.

 

More from Bloomberg:

 

German retail sales rose more than economists forecast in May, adding to signs that a recovery in Europe’s largest economy has gathered pace amid record-low interest rates, while inflation accelerated.
 
Sales adjusted for inflation and seasonal swings climbed 0.8 percent from April, when they fell 0.1 percent, less than originally estimated, the Federal Statistics Office in Wiesbaden said today. Economists had predicted a May increase of 0.4 percent, according to the median of 23 forecasts in a Bloomberg News survey. The consumer price index rose more than forecast, climbing 1.9 percent this month, separate data showed.

PBOC Governor Tries to Reassure Markets

Zhou Xiaochuan, governor of the People’s Bank of China (PBoC), promised Friday to ensure there is enough money in financial markets to maintain stability after a credit crunch sparked fears of a possible crisis, his first comments since a record cash squeeze hit the world’s second-largest economy.

 

Addressing a financial forum in Shanghai, Zhou said:

 

“The PBoC will use all sorts of instruments and measures to adjust the overall liquidity level, so as to ensure the overall stability of the market.”

 

More from Bloomberg:

 

China’s growth slowdown remains in a “reasonable” range and the economy is stable, Zhou, head of the People’s Bank of China, said today in a speech at the annual Lujiazui Forum financial conference in Shanghai.
 
Zhou is trying to soothe concerns that the credit crunch will harm growth, saying today that he’s fully confident in the nation’s economic prospects and financial system. He reiterated points in the central bank’s June 25 statement that it will use tools to safeguard stability in money markets, after the overnight repurchase rate surged to a record high last week.
 
The PBOC “will use all kinds of tools to appropriately adjust liquidity in the market and maintain the overall stability of the market,” Zhou said in his first public remarks since the liquidity squeeze that sent money-market rates to the highest in at least 10 years.
 
The central bank will “create good monetary conditions for stable operation of financial markets and economic development,” Zhou said. Markets are “very sensitive” and will have a “fast response to any signals,” he said.
 
He made the points on the economy and markets at the end of a 30-minute speech devoted mostly to discussing how Shanghai can develop into a global financial center.