Yesterday, global stocks rose after Larry Summers pulled out of the race to succeed Ben Bernanke as chairman of the U.S. central bank, leaving vice-chair Janet Yellen as the front-runner.
Today, however, it’s the Fed decision that looms large, with expectations its policy makers will unveil plans to begin pulling back on their massive bond-buying program known as quantitative easing, or QE.
“Dealers are beginning to lock in profits from yesterday's rally, with speculation of a $10-billion tapering in the Fed's bond-buying scheme,” said market analyst David Madden of IG in London, referring to the rumoured reduction in the $85-billion-a-month program.
“The only way dealers will be surprised is if the trim is more or less than $10-billion. Investors are reacting well to the rumour that Janet Yellen will take over from Ben Bernanke in the new year, as Ms. Yellen is more likely to keep the QE tap flowing.”
Asian and European stocks fell, while North American exchanges rose.
“Investors are tweaking their positions in what is being called the ‘autumn of QE’ caution as markets are preparing for the Federal Reserve’s decision on whether to begin tapering its asset-purchase program,” said sales trader Ankit Kapur of CMC Markets in London, referring to the central bank’s policy-setting group, the Federal Open Market Committee.
“After months of anticipation and speculation the Federal Open Market Committee must decide tomorrow whether to begin to wind down their quantitative easing. The anticipation is a $10-billion to $15-billion reduction in the $85-billion-a-month program. Some analysts are also predicting the Fed will seek to strengthen its forward guidance to stabilise the markets.”
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Canada’s factories rebounded in July as sales climbed 1.7 per cent.
And, as Statistics Canada noted today, the gains were fairly broad-based as 15 of the 21 industries measured posted better numbers.
Sales rose 2.1 per cent among durable goods manufacturers, and 1.2 per cent among those on the other side of the ledger, such as petroleum and coal.
The federal agency’s “miscellaneous” category was also interesting as sales powered ahead almost 24 per cent, primarily because of jewellery and silverware.
Ontario turned in the best performance among the provinces, with manufacturing shipments climbing 3.2 per cent to mark the highest showing since June, 2012.
"The rebound in the volume of manufacturing sales in July is encouraging and suggests that, while not significantly related to flooding in Alberta, weakness in June was nonetheless temporary," said economist Nathan Janzen of Royal Bank of Canada.
"While challenges for the sector remain, we expect that stronger growth externally, particularly in the United States, will support stronger manufacturing activity over the second half of this year and into 2014."
Over all, inventories increased by 0.4 per cent, the inventory-to-sales ratio dipped to 1.4 from 1.41 in June, and unfilled orders rose by 0.4 per cent.
"Note that overall manufacturing sales remain slightly below year-ago levels (-0.1 per cent year-over-year), inventories have risen to record levels and the inventory-to-sales ratio is on the high side of normal," said senior economist Robert Kavcic of BMO Nesbitt Burns.
"Suffice it to say that the sector would certainly welcome a sustained pickup in growth south of the border."
Keeping up with the Kardashians
As nicknames go, this one’s a little spicier than "Maple."
British analyst Timothy Ash has dubbed Armenia’s new offering the “Kardashian bond,” a dollar-denominated issue for which there was a roadshow last week.
(Debt denominated in Canadian dollars but issued by foreign institutions are known as Maple bonds, while Yankee bonds are U.S.-dollar notes sold by foreign institutions south of the border.)
Mr. Ash used his nickname in a research note last week, and then again today when pointing out that “it’s gone a bit quiet on the Kardashian new bond issue front after last week’s roadshow … Perhaps they are mulling over investor feedback.”
(This is not to suggest that markets should expect a “Snooki bond” from New Jersey.)
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