New Zealand

Today (like pretty much every other day), it will be all about the Fed and the start of its 2-day FOMC meeting, whose outcome will be influenced by today's 8:30 am CPI report as inflation (Exp. 0.1%) according to many is the only thing stopping the Fed from tapering in light of better than expected recent economic data as well as a clearer fiscal outlook. Or at least that's what the watercooler talk is. The hardliners now agree that since the Fed openly ignored the bond market liquidity considerations in September, that it will plough on through December with no announcement, and potentially continue into 2014 with zero chances of tapering especially now that we approach the end of the business cycle and the Fed should be adding accommodation not removing it. To that end, the consensus still is in favour of January or March for the first taper so markets are not fully set up for a move; conversely a dovish statement would probably result in yet another pre-Christmas, year end market surge, which in the lower market liquidity days of December is likely what the Fed is going for, instead of a volatile, zero liquidity sell off, despite Thursday's double POMO.

With home prices in the UK driving people to live in boxes and Bob Shiller worried about the US, Bloomberg's Niraj Shah notes that the Knight Frank global house price index has risen to a record. The index, now 4% above the previous high in Q3 2008 is led by China and Emerging Nations (with Europe weakest) as investor speculation amid central bank liquidity fuels yet another bubble (that no one could see coming again).

Contrary to some expectations, the budget deal has done absolutely nothing to push global markets or US futures higher which was to be expected: markets are no longer driven by fundamentals but by such things as carry pairs which signal monetary policies. Sure enough, as a result of the strength in the Yen, overnight markets have reacted with a mixture of cautiousness and optimism. On the cautious side, Asian equities are down across the board which can at least be partially attributed to nervousness at the prospect of a December Fed taper. If Congress passes the budget over the next few days, the probability of a taper next week increase at the margin, given that we have lower fiscal uncertainty (and higher spending) over the next two years. Losses in equities are being led by the Nikkei (-0.7%) and the Hang Seng (-1.3%). Asian credit shows no sign of taper nervousness this morning with the Asia IG index 4bp tighter and high beta EM names such as Indonesia trading firmer (5yr CDS -10bp). 10yr UST yields are unchanged at 2.80% and the US dollar is slightly stronger against the major crosses. The Hang Seng China Enterprises index is down 2.3% ahead of the results of China’s central economic work conference which is expected to end tomorrow and may set a number of economic targets for 2014.

Emergency resolutions and legislation would be likely in many countries in the event of another Lehman Brothers collapse and another global credit and financial crisis. 

Particularly vulnerable banks in each country are....

The US data flow is relatively light which is typical of a post-payrolls week but it’s worth noting wholesale inventories on Tuesday and retail sales on Thursday. Importantly US House and senate negotiators are supposed to come to an agreement on a budget before the December 13th deadline. A lot of optimism has been expressed thus far from members of congress, and there are reports that a budget deal will be unveiled this week.

See why the Fed is unlikely to taper in December, but Q1 14 is much more likely.  Read a preview of the highlights from the week ahead.  

Below some leading economists and financial commentators give their perspective regarding the risks of bail-ins or deposit confiscation. If you manage money in any way, your own or others,it will be prudent to heed their warnings. 

You know that game involving word association at the psychotherapists? The one where you have to say the first word that springs to mind.

Michael Noonan, Irish Finance Minister confirmed yesterday that bail-ins or deposit confiscation will be used in the EU. The era of bondholder bailouts is ending and that of depositor bail-ins is coming.

Preparations have been or are being put in place by the international monetary and financial authorities for bail-ins. The majority of the public are unaware of these developments, the risks and the ramifications.

Overview of the near-term outlook for the major currencies.  

An overview of the near-term US dollar outlook.  Not thinking it is crashing and burning next week simply because it is not backed by gold or because the Fed is engaged in QE.  

Outsourcing the NSA’s Dirty Deeds In An Attempt to Create Plausible Deniability

The following Top Ten Market Themes, represent the broad list of macro themes from Goldman Sachs' economic outlook that they think will dominate markets in 2014.

1. Showtime for the US/DM Recovery
2. Forward guidance harder in an above-trend world
3. Earn the DM equity risk premium, hedge the risk
4. Good carry, bad carry
5. The race to the exit kicks off
6. Decision time for the ‘high-flyers’
7. Still not your older brother’s EM...
8. ...but EM differentiation to continue
9. Commodity downside risks grow
10. Stable China may be good enough

They summarize their positive growth expectations: if and when the period of stability will give way to bigger directional moves largely depends on how re-accelerating growth forces the hands of central banks to move ahead of everybody else. And, in practice, that boils down to the question of whether the Fed will be able to prevent the short end from selling off; i.e. it's all about the Fed.

It it walks like a duck, quacks like a duck and looks like a duck... Is it really a platypus? After all, this time is different... Right?

The only numbers that matter today are 16000, 4000 and 1800: those are the Fed's closing targets for the Dow Jones, the Nasdaq and the S&P. Following last night's Chinese euphoria which saw the Shanghai Composite surge by 2.87%, or up 61.4 to just under 2,200 on renewed hopes for Chinese reform by 2020, the Fed's price targets should all be quite easily achievable. And not even the rising home prices in 69 out of 70 cities year over year, and 65 over month - the same as last month, with new nome price inflation at 0.6% overall and 0.8% for the first tier cities, was able to put a dent in the reflationary spirits in the Mainland. Additionally, news that China would join the US and Europe in "adjusting" its GDP calculation method, which would add R&D expensing into the bottom line, and as a result boost the overall number, is, well, helping things. Finally, with today's POMO a rather whopping $3-$4 billion, it is only a matter of time before all three of the previously noted psychological resistances are promptly taken out by the Fed's open markets desk.