The financial world waits for Ben Bernanke’s testimony to the House Financial Services Committee. (The written speech will be made available at 7:30 a.m. CST, 90 minutes prior to the start of testimony.) This is a new policy so as to preempt any leakage by the notorious inside trading group that resides within the bowels of a non-regulated legislature. (Of course, high frequency trading groups will have it two seconds earlier. What are campaign contributions for?) The prepared text will be plain vanilla and any possible market moving news will come during the Q&A. It would be a great surprise if Chairman Bernanke reveals any new wrinkles on FED policy for another bout of veering from the FOMC minutes would begin to undermine the FED‘s credibility.
Bernanke’s shadow wrote a piece today in the Wall Street Journal, “Economic Riddles Could Reshape Fed’s QE Exit Planning.” The article was citing four possible questions that could undermine the FOMC‘s effort to pull back from removing the QE program and also push the markets into a new effort at establishing riskier financial positions. Hilsenrath quotes from the June Bernanke press conference: “That could mean the jobless rate is ‘not exactly representative of the state of the labor market” This dovetails with my piece from last Wednesday’s Q&A at the NBER conference in which “OVERESTIMATES THE HEALTH” was the phrase that caused a bond and stock rally and a selloff in the U.S. DOLLAR. The OVERESTIMATES was in reference to the present 7.6% unemployment rate.
The House Democrats will probably ask Chairman Bernanke about that comment and if the unemployment rate is overstating the health of the economy why is the FED even thinking about removing the stimulus. The DEMOCRATS are focused on JOBS so this will be the main point of contention and pay close attention to how the chairman handles the unemployment part of the dual mandate.
****Today, Bloomberg news released the European auto sales for June. Year-over-year, sales were down 6.3% in the European domestic market, falling to a two-decade low. An EU-wide unemployment rate of 12.2% is shrinking demand for durable goods and the data keeps revealing an economy struggling to find growth. No matter how much Euro policymakers proclaim the recession to be over, all the new releases continue to show an economy in decline.
Also in auto news, Ford’s Vice President for International Government Affairs Steve Biegun was lobbying the Obama Administration to keep Japan out of the Trans-Pacific Partnership Trade Agreement because it manipulates the YEN. U.S. automakers are trying to get the Obama economic team to force Japan to start its QE policies that are weakening the YEN and helping enhance the global competitiveness of the Japanese manufacturers. Tomorrow’s Financial Times, “Ford Lashes Out At Japan’s Entry Into TPP Trade Talks,” the issue of the YEN is the constant complaint of the U.S. manufacturing groups. U.S. automakers will not support the Asian trade agreement unless there are provisos about currency manipulation. The administration’s economic team and even Fed Chairman Bernanke have endorsed the policy of Abenomics in an effort to jumpstart the Japanese economy. The mantra from the Treasury and the FED has been that a weakened YEN is tolerable if it improves the Japanese domestic economy. What’s also interesting is the FT story appears as the G-20 meets this week. Let’s see if the Japanese YEN re-emerges as a G-20 topic of conversation.
***Quick Hitter: Mexican President Nieto put forward a plan today for a massive infrastructure program. It would entail that the Mexican Government and private sector interests would embark on a $316 BILLION spending agenda during the next six years–roughly spending 5% of its GDP for enhanced infrastructure. It will involve investment in transportation, communications and energy. This is currently being forwarded to Congress so the process is just beginning and it seems that in order to get foreign investment into PEMEX the Mexican President is pushing a massive program of huge spending. President Nieto may just have found a solution to the needed investment into the energy sector and thus a change to the Mexican Constitution of 1938 that populist backlash has prevented. Let the legislative games begin.
***Bank of Canada will have its first meeting under new Governor Stephen Poloz. Consensus is for no change in the current overnight rate of 1%. The Canadian economy has slowed but Governor Poloz will probably wait to see more news out of Europe and Asia before embarking on any policy change..