Notes From Underground

As we all know, the FED held rates at the FOMC meeting and left the “extended period” phrase in and will maintain QE2 through its duration. Two weeks ago Jon Hilsenrath opined that the FED would likely remove the “extended period” language but that proved another opinion without material support. Many analysts felt that the March 15 FOMC statement was more hawkish than previous statements but I struggle to see how that is in fact the case. Yes, the FED did say the economy is on “firmer footing and overall conditions in the labor market appear to be improving gradually.” There were a few references to inflation but that hardly makes for a hawkish outlook.

The fact that the vote was again UNANIMOUS makes me believe that the “hawkish” language was a tip of the hat to PLOSSER and FISHER to ensure that the vote was unanimous. It is difficult to determine the FED’s impact on the Treasury market, as there are so many geopolitical factors in play. It is important to step back and let the market re-establish its fundamentals in order to get back on a firmer footing.

All things NUCLEAR: The importance of the nuclear is nowhere more significant than France. The World Nuclear Association recently reported that France receives 75 percent of its electricity from NUCLEAR POWER. More importantly, France exports more than 3 billion euros of electricity to other European countries. Also, French industrial giants are major sellers of REACTORS, fuel, and builders and servicers of nuclear power. Now that the world’s concern is growing about the safety of nuclear power, the French nation has trouble finding its voice. This will pass but they certainly want to avoid the spotlight. It was of more than passing interest that Christian Noyer, the French bank president, recommended today that with the problems in Japan the ECB may not want to be so quick to raise interest rates.

If there is a moratorium on global nuclear power development, the hit to industrial France will be large. I don’t think this will be the result of the disaster at FUKUSHIMA, but the public reaction with support of the popular media will certainly have a momentary impact. To all those thinking that the ECB will raise rates, this may provide the thought of NOT SO FAST.

Now to the big question: WHO IS GUENTHER OETTINGER? He is the now-infamous European Commissioner for Energy, who places the market in a momentary free fall as he said in a news conference: “IN COMING HOURS THERE COULD BE FUTHER CATASTROPHIC EVENTS.” This was a comment in reference to Japan and the markets reacted in sheer panic. There was initially no name attached to the statement, merely the high level position from which it emanated. This market-moving statement proved unfounded and as a trader and analyst, I was left to ponder what prompted this frightful insight from an European Commissioner. Herr Oettinger is a member of Chancellor Merkel’s CDU party and he previously held high office in Baden-Wurttemberg. It seems plausible that Oettinger was trying to influence German politics. In less than two weeks there is an important election in Baden-Württemberg, a German state that the CDU has held for more than 50 years.

Until the recent EU summit, Merkel’s party was struggling to hold power as the polls showed the CDU/FDP has been tied with the SPD/GREEN coalition. Initially, the CDU picked up ground on the belief that Merkel stood firm on the BAILOUT ISSUE. However, since the problems in Japan, the SPD/GREEN coalition has been gaining support on its anti-nuclear energy platform. The problem for Merkel is that the CDU partner, the FDP, is a known proponent of NUCLEAR POWER and the FDP has always made it a centerpiece of its platform. I am wondering if the CDU was using Japan to cut the FDP and appear to get itself ahead of the issue rather than being trapped by its junior partner. If not this, I wonder if Oettinger was short equity futures. Analyze the world long enough and CYNICISM takes hold.

Tags: Angela Merkel, CDU, Christian Noyer, ECB, EU, Fed, Fisher, FOMC, France, Guenther Oettinger, nuclear power, Plosser, QE2

This entry was posted on March 16, 2011 at 12:39 pm and is filed under Federal Reserve, FOMC, France, Germany. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.