The markets are pausing at the moment at all-time highs, as investors listen in to the Q&A portion of Bernanke’s testimony. Despite a slew of earnings reports out today, the main area of focus continues to be global central bank policy.
Central Bank Actions Today:
Fed – Bernanke is currently testifying before the House Financial services Committee. His prepared comments were released at 8:30 ET. The Chairman will also testify before the Senate banking Committee tomorrow. The prepared remarks maintain the notion that the Fed is looking to start buying less debt assets, probably between September – December. Bernanke noted that monetary policy is not on preset course, meaning that if the recovery falters, we could actually see more QE. The unknowns in the market continue to be the magnitude of the reductions to be included in the taper, and how long will it take to go from tapering to actual tightening. The Chairman will likely try to alleviate concerns, and will continue to reinforce any tapering not constitute a tightening of monetary policy. It could be 2016 before policy normalization begins.
Bank of England – The Bank of England released it’s minutes from the last policy meeting of the MPC this morning. After those minutes showed the membership voting unanimously against an expansion of their quantitative easing program, most European equity indices slid into negative territory. BOE head Mark Carney was rather hawkish at the Bank of Canada, which also held their policy meeting today, leaving their overnight rate at 1%.
China – The Chinese Finance Minister, Lou Jiwei, indicated that there will be no large scale fiscal stimulus package anytime soon, disappointing investors concerned about the continual erosion of Chinese GDP. The Shanghai Composite fell -1% on the news.
Other Areas of Focus Today:
Disappointing Housing Starts – One of the bright spots in the economy surprised today, with June housing starts coming in at their lowest level since Aug. 2012. Building Permits fell 7.5% (biggest miss ever). With both data points way below expectations, concerns are creeping in about the sustainability of the housing recovery.
Earnings – Before the open, we had several financials report (BAC, BK, and PNC). After the close, we have AXP, EBAY, INTC, and IBM all reporting. BAC and WFC are trading at new multi-year highs, up over 21% YTD.
Euro-Zone Weakness – Both 5-year and 10-year Portuguese yields are currently flirting with the 7% level (danger zone area). The Bank of Italy lowered its 2013 GDP growth forecast from -1.0% to -1.9%.