Despite lingering concerns in sovereign crisis issues in the Eurozone, market sentiment improved modestly in European and US sessions on anticipations that the Fed would announce additional easing measures after the FOMC meeting. Investors were getting more confident that Greece would meet the requirements of getting the next tranche of funding. Macroeconomic data was not at all encouraging. ICSC weekly retail sales dipped while housing starts unexpectedly plunged. The IMF downgraded global economic outlook. As equities were slightly up (DJIA: + 0.07%, S&P 500: down -0.17%, European bourses: up 1.5-3.0%), oil climbed during the day with the WTI crude contract for November delivery rising +1.29% and the equivalent Brent crude contract rising +1.28%. Gold rebounded but the choppy trading pattern remained. The +1.70% gain, however, suggested investors continued to seek for safe-haven assets.
Greek Finance Minister Evangelos Venizelos affirmed that staying in the Eurozone is an 'irreversible and fundamental national choice'. He also reassured that the country has 'made good progress' in the talks with the troika. It appeared that the debt-ridden nation will be able to get the next trance of funding soon. S&P's cut of Italy's credit rating raised concern that for downgrades will be seen next month.
The IMF trimmed its growth forecasts for this year and 2012 as 'global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing'. GDP will grow +4% in 2011 and 2012, lowered than +4.3% and +1.5% respectively projected in June. The slowdown in advanced economies will be more severe with 2011 growth in the US sliding to +1.5% from +2.5% estimated in June. The world lender urged policymakers to find 'collective resolve' regarding Greece's potential default and the sovereign debt crisis in the European periphery.
The September FOMC meeting remained under the spotlight. It's widely expected policymakers will announce something called 'operation twist' -increasing the average maturity of securities holdings by swapping holdings of lower maturities Treasuries with longer ones, after the 2-day meeting. Compared with outright bond purchases (QE3), one advantage of operation twist is that the size of the Fed's balance sheet would remain unchanged and is less unlikely to invoke inflation.
Concerning the US dataflow, the ICSC?Goldman Sachs (ICSC?GS) chain?store sales index dropped -1.2% w/w in the week ended September 17. Housing starts unexpected plunged -4.99% to 571K in August while building permits soared +3.16% to 620K. Existing home sales probably climbed +1.71% to 47.5M last month.