Mithril Asset management - Weekly Bulletin presented by Square Mile Financial Services
Weekly Finance Bulletin 17th September 2012
Well there you have it. After months of to-ing and froing, the market which begged, got what they finally wanted. The closing paragraph of the opening section of last week’s bulletin speculated on the enormous pressure on the Fed to act as the sustainability of economic recovery came further and further into question.
We didn’t feel that the Fed would act now in favour of acting post US election in early 2013. However Bernanke, worried that improvement in the unemployment rate had ground to a halt, announced a third round of bond purchases on Thursday in an effort to bring down long-term interest rates and boost economic growth. The Fed said it would buy additional mortgage-backed securities at a pace of up to $40 billion per month.
If markets liked what Draghi had to say last week, Bernanke’s announcement would be close to euphoric.
In addition to bond purchases, the Fed said it intends to keep the benchmark short-term interest rate, known as the federal funds rate, at nearly zero until mid-2015. In addition to bond purchases, the Fed said it intends to keep the benchmark short-term interest rate, known as the federal funds rate, at nearly zero until mid-2015. The Fed said it would keep low rates in place for a “considerable time,” even after the economic recovery strengthens. There’s that wondrous market wooing notion of ‘unlimited’ liquidity once again.
In a game of 3’s the next hurdle lies with Spain. Abiding by the terms of the ECB’s new bond buyback plan, member states must request assistance and its Prime Minister continues to stall with the terms and conditions attached to Draghi’s latest grand plan to include further fiscal discipline.