We’ll hear again from the 4th branch of government today, the Federal Reserve, to tell us their plan to replace the upcoming expiration of Smother the Yield Curve. Between Fed speeches and WSJ articles, it seems likely that we’ll get $45b per month of unsterilized Treasury purchases, thus bringing the monthly dose of electronically printed money to $85b including the ongoing MBS program. Fed policy will again try to pull forward economic activity as for example, any new car or home purchased today because of artificially engineered cheap money is one less car purchased later when the price of money is more dear. With diminishing returns on helping the economy clearly seen in 2012, we’ll see in 2013 whether that will be the case for asset prices as it may take more and more help to maintain the same level of sustenance. With the avg 30 yr mortgage rate moving again to a record low for the week, the MBA said purchase apps were up just .7% after a .1% increase last week but that it is to a one yr high. Refi apps rose 8% to an 8 week high. One other thing of note ahead of the FOMC, the 5yr 5yr forward inflation breakeven closed yesterday at 3.07%, the highest since July 2011.

In Asia, an 8 month low in the yen coincided with an 8 month high in the Nikkei. Japan said machinery orders bounced back in Oct. India’s IP in Oct jumped 8.2% y/o/y vs est of 5%.

In Europe, the UK reported an unexpected drop in jobless claims and the pound is at a 1 month high vs the US$. Yields are lower for a 2nd day in Italy and Spain after Italy sold the max amount of 1 yr bills they hoped for notwithstanding political uncertainty. Euro zone IP in Oct fell 1.4% m/o/m vs the est of flat.

II: Bulls 45.7 v 43.6, 2 mo high. Bears 23.4 v 25.5, lowest since May.

Category: MacroNotes

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