From Japan to Libya to Bernanke to U.S. Earthquake

August 24, 2011 02:36 AM

via a special arrangement with Informa Economics, Inc.

Japan credit downgrade | Hurricane Irene | Treasuries | Lbya oil | Fed watching | Earthquake

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Japan will be one focus for traders today with Moody’s downgrading the country’s rating (they now match S&P and Fitch) and the country rolling out new measures to try and stem the yen’s rise. Japan unveiled a $100 billion facility to encourage companies that have big yen holdings to acquire foreign companies and energy resources, using the yen’s strength to their advantage. This is the first use of foreign exchange reserves in the Japanese government’s special forex account aimed at promoting overseas investment. The Ministry of Finance estimates that as much as ¥4 trillion in private funds will be converted into dollars for lending if the scheme is fully utilized, according to the Wall Street Journal.

Hurricane Irene is building strength and has the potential, according to forecasters, to affect a significant portion of the U.S. East Coast. But a key note from forecasters: Going out four and five days in the forecast period the margin of error in terms of the storm’s track is significant – 175 miles or more. So as things get closer, the picture of where Irene will affect things will become much clearer.

Record-low yield on 2-year note auction took place yesterday. The 0.222 yield was a low-water mark for the two-year note and puts another focus on remaining auctions this week.

Libya remains a factor as Gadhafi, who still claims he is the Libyan leader, is vowing to fight. That has kept a lid on oil market action as traders try to determine just when oil from the country may make its way back into the world petroleum pipeline. Until there is resolve, it will temper action in the oil trade unless there are other events that trump the Libyan rebel gains.

Friday Fed watching continues, with anticipation building on what Fed Chairman Ben Bernanke will say when he takes to the podium in Jackson Hole, Wyoming, on Friday morning. But with such focus, it could up the odds for disappointment in the marketplace, especially if he offers little hope or few specifics about what the Fed will – or won’t – do to help the struggling US economy. That could set up for a volatile end to the week in financial markets.

Comments: Key to these economic forecasts will be restarting the U.S. economy via job creation and balancing the tug 'o war between deficit reduction and slow growth against a negative backdrop in Europe. But the key question and lynch pin for sustainable growth remains: Can we re-establish job growth in a significant way without improvement in the housing sector?

Meanwhile, several readers asked me about the earthquake in the Washington, D.C. area on Tuesday. I was actually at the Minneapolis airport when it occurred, en route back to D.C. But my neighbors and friends in Virginia, Maryland and D.C. all told me it definitely "moved" them. But very little damage was done. Government workers bolted on precaution, as is necessary. Most of them went to bars to talk about the incident. All things are back to normal in D.C. now...whatever that is.


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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