Further Fed Easing Not Ruled Out

By Roger Baettig | November 15 2012 4:26 AM

Investors who had expected the European Economic Affairs Commissioner Olli Rehn's statement would be an announcement of Spain’s request of bailout would be disappointed. Indeed, Rehn said that the country did not need to adjust its budget despite the likelihood of a fiscal shortfall this year. According to the Rehn, Spain has taken "effective action in 2012 and 2013" and the consideration was "not so much focused on the nominal targets, even though they often make easier headlines because they are exact percentages".

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The October FOMC minutes unveiled that policymakers discussed several issues at the meeting, including replacing the calendar language to data threshold in future guidance and implementing additional asset purchases after the expiration of Operation Twist in December. However, no consensus was reached during the meeting and no action is expected in December. The minutes also stated that the FOMC staff revised up economic forecasts in the near- and medium-term but suggested that 'progress in reducing unemployment over the projection period was expected to be relatively slow.

In Asia, Japanese yen plummeted as Japanese Prime Minister Yoshihiko Noda said that he would dissolve parliament on November16, paving the way for an election next month. In the likely event that the opposition Liberal Democratic Party wins the election, it would pressure the BOJ to implement further monetary easy measures to stimulate the fragile the economy.

On the dataflow, retail sales contracted -0.3% m/m in October after gaining +1.15 in the prior month. The market had anticipated a milder drop of -0.1%. Excluding auto, retail sales was flat on monthly basis, compared consensus of a +0.3% gain. The industry-sponsored-API increased +1.35 mmb in the week ended November 9. For fuels, gasoline dropped 0.10 mmb while distillate added +0.18 mmb. The DOE/EIA probably report crude stock increased +1.5 mmb, gasoline stayed flat and distillate dropped -0.5 mmb during the week.

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