[B]Finance ministers agree framework for single supervisory body[/B]
Today’s UK opening call provides an update on:
* ECB to oversee major European banks;
* European leaders meet on day one of the EU summit;
* Fed commits to additional $45 billion of Treasury Note purchases;
* Negotiations between Obama and Boehner stall.
Stock markets are expected to open relatively flat this morning despite progress being made at the EU finance ministers meeting over night.
Finance ministers came to an agreement for the ECB to become the single supervisory body for all major banks in the eurozone, while also having the power to intervene in smaller banks when necessary. The deal means that, as promised, we should have a roadmap in place by the end of the year as long as the finer details can be agreed at the EU summit today and tomorrow.
The one problem with this deal is that it was agreed in the early hours of the morning and appears a little rushed in order to meet the end of the year deadline. In the past this has meant that plenty of holes remain in the plan, which will be dealt with on another date. If this is the case we can only hope that this is dealt with at the EU summit because until I see the framework, I remain pessimistic.
There will be a number of items on the agenda at the EU summit this week, including setting up a road map for the single supervisory mechanism which will move the eurozone closer to becoming a banking union and deciding on whether to release Greece’s bailout payment following the completion of the debt buyback. They will also discuss a number of other ideas aimed at becoming more of an economic and monetary union.
The two day meeting of the Federal Reserve went largely as expected this week. The statement yesterday confirmed that Operation Twist, which expires at the end of this year, will be replaced with another $45 billion dollars per month of Treasury Note purchases. This will now add $85 billion per month to the Fed’s balance sheet.
One surprising aspect to the press conference which followed was the Fed’s commitment to keep interest rates close to 0%, until unemployment fell to 6.5% or inflation is projected to rise above 2.5%. The surprise here is not so much that it is linked to unemployment, because that was always assumed.
The surprising part comes from the fact that the target rate has been set, something that has not been done before. In the past, there has simply been a commitment to keep them low until a given date in the future.
Discussions over the fiscal cliff are ongoing between Barack Obama and John Boehner, although progress appears to be slowing. Boehner is believed to have stated that Obama is not committed to the balanced deal he speaks of in the press, making a deal very difficult.
This is clearly just tactics by Obama, looking to get the best deal for the Democrats, however it is going to reach a point when it will become counter productive. With businesses not hiring amid the uncertainty and consumers less likely to spend, a deal needs to be done as soon as possible, which means we need less games and more serious negotiations.
The euro is trading higher against the dollar this morning. The pair has broken above the descending trend line dating back to September’s highs and looks likely to…