Congress to Debate on Oil and Gas Tax Subsidies

President Obama is seeking a repeal of tax incentives for oil and gas producers in the U.S. Revenue from the repealed tax subsidies would likely be spent to fund clean energy research which would provide for less expensive fuel alternatives.

New York Times, April 30, 2011
Gas Prices Spur Sound and Fury in Washington

Oil Prices and Winter Weather Slow U.S. Economic Growth

Domestic economic output grew at an annual rate of 1.8% in the first quarter of 2011 after expanding at a rate of 3.1% in the previous quarter. The slower growth was attributed to higher oil prices and winter weather.

Higher oil prices led to decreased profits for businesses and less discretionary income for consumers. Winter weather also took its toll by closing many businesses and delaying construction on new homes.

New York Times, April 29, 2011

U.S. Economy Grew 1.8% in First Quarter

Oil and Gas Prices Continue to Rise

Commodity prices, particularly oil and gasoline, have shown significant increases year-to-date. These prices will continue to be closely watched as the Federal Reserve enters their final phase of bond-buying. Following the end of the program in June, the focus is expected to turn to a debate on the federal funds rate, which has remained at 0 - 0.25% since December 2008.

Wall Street Journal, April 28, 2011
Crude-Oil, Gasoline Prices Climb

U.S. FOMC Meeting Focuses on Inflation

The Federal Reserve announced it would continue its bond buying program through June as scheduled. The inflation outlook is not expected to warrant an increase in interest rates immediately following the end of QE2. However, commodity prices have steadily been pushing higher and the Fed raised their inflation forecast from 1.3% to 1.7% in 2011. The Fed did not foreshadow the economy reaching its expected inflation rate of 2% until as late as 2013 which would probably not call for a raise in the interest rate in the near future. The Federal Reserve's next scheduled FOMC meeting will be in July.

Wall Street Journal, Wednesday, April 27, 2011
Fed Signals Intent to Complete Bond Buying

Watch Ben Bernanke's FOMC press conference:
Fed Chairman Ben Bernanke's FOMC Press Conference

Treasury Market Awaits Federal Reserve Announcements

Treasury trading volume was significantly lower on Monday as investors awaited announcements by the Federal Reserve on policy decisions.

Closing Treasury yields on Monday were the following:

1-year note 0.206%

3-year note 1.119%

5-year note 2.069%

10-year note 3.365%

30-year note 4.456%

Tuesday, April 26, 2011

Treasurys Rise in Quiet Before Bernanke

Wall Street Journal Markets Data

Quantitative Easing

The Federal Reserve will meet on Tuesday and Wednesday of this week. The spotlight will be on QE2 and the Fed is expected to announce continuance of its bond-buying program through June.

Monday, April 25, 2011
Fed Searches for Next Step

U.S. Energy Prices

President Obama's focus was on gas prices today in his weekly radio address. High gas prices have affected inflation and President Obama says he wants to eliminate tax subsidies to gas companies to ease the burden on U.S. consumers.

New York Times, April 23, 2011
The Politics and Government Blog of The Times: Weekly Address

Dollar Weakens

It is no surprise that the dollar weakened this week against its basket of currencies in the ICE Index. Relief for the U.S. will not come until the budget debate is under wraps and the debt ceiling is decided on.

Concurrently, Europe and the euro continue to strengthen. The ECB’s announcement of an increase in rates has added momentum for the region. Additionally, the Eurozone’s control of Greece, Ireland, and Portugal, all under the care of the EU – IMF aid fund, has calmed the zone’s worries of a widespread contagion.

Wall Street Journal, April 22, 2011

Dollar Tumbles to Precrisis Levels

The Housing Market

Housing market prices fell in March. The median price decreased to $159,600, which was down 6% from a year earlier.

Wall Street Journal, April 21, 2011
Existing-Home Sales Tick Up, but Prices Slip

Treasury Yields

Standard and Poor's outlook on U.S. government debt pushed the yield on the 10-year treasury note to 3.354%. Yields on the 30-year note moved to 4.436% and the two-year note yielded 0.653%.

Wall Street Journal, April 20, 2011
A Silver Lining to S&P's Cloud

A Closer Look at U.S. Federal Debt and the Debt Limit

The U.S. federal debt limit was last increased to $14.294 trillion on February 12, 2010. That federal debt limit is expected to be exceeded by mid-May to June and the 2011 ending estimated debt is $15.476 trillion. Federal debt ending 2010 was $13.5 trillion with $4.5 trillion held by government accounts and $9.0 trillion held by the public.

Analytical perspectives from the White House’s Office of Management and Budget website provide further breakdown on U.S. federal borrowing.

Wall Street Journal, April 19, 2011

S&P Cuts U.S. Ratings Outlook to Negative

Rating Agency Changes Outlook on U.S. Debt

Stocks fell following Standard and Poor's announcement of a change in outlook on U.S. government debt. Falling 1.1%, the need for budget cuts and resolution on the debt ceiling was factored in.

Wall Street Journal, April 18, 2011
Release: S&P Cuts U.S. Ratings Outlook to Negative

U.S. Budget Debate

The debate over the U.S. budget will have an impact on the 2012 election. Democratic and Republican party values will be significantly brought to light. Two areas of focus during the debate will be Medicare and Social Security.

New York Times, April 17, 2011
The Budget Debate, Revealed

Consumer Prices and Inflation

The Consumer Price Index increased 0.5% in March pushed up mostly by food and energy prices. The core index, excluding food and energy, increased only 0.1%.

Food costs increased 0.8 percent in March and gasoline rose 5.6 percent in March.

New York Times, April 16, 2011
U.S. Consumer Prices Up 0.5%, Pushed Mainly by Food and Gas

2011 U.S. Budget Bill Approved

The U.S. bill designed to cut $38 billion in spending for the remainder of 2011 was approved by Congress yesterday. The bill is a step toward reining in the federal budget. The U.S.’s next focus will be on next year’s federal budget plan and will have to involve a vote on raising the federal debt limit. Without debt restructuring or a raise in the debt ceiling the U.S. will default on federal debt payments by mid-May.

New York Times, April 15, 2011

Congress Passes Budget Bill but Some in GOP Balk

Germany Calls for Greater Austerity Measures in the Eurozone

Germany has led the way for austerity measures in the Eurozone since Greece requested bailout in May 2010. Their measures do not differ much from the political debates in most countries and call for decreases in spending and benefits as well as an increase in taxes and greater enforcement of tax evasion.

Germany will likely continue to push for increased austerity in the Eurozone and specifically for Greece, Ireland, and Portugal as these measures have already been factored into the aid agreements for these three countries.

New York Times, April 15, 2011

Resentment Is Rising In Euro Zone

Budget Deficit Plan and the Federal Borrowing Limit

President Obama laid out a budget plan that would cut federal deficits by $4 trillion over four years. In his speech, budget cuts that would pave the way for an increase in the federal borrowing limit were also announced. The federal borrowing limit will be a focus of debates over the next few months as the U.S. is expected to reach its limit by May 16. A decision on the ceiling is expected by June and maneuvers could be used to delay defaults until July.

Wall Street Journal, April 14, 2011
Obama Stokes Deficit Fight

REITs Remain Marketable

Nine new REITs have been developed for the market this year. These developed securities show that demand still remains for packaged mortgage securities depsite the credit and liquidity failures that were caused by sub-prime mortgages in 2008.

Wall Street Journal, April 13, 2011
Mortgage REITs on a Tear As High Yields Fuel Demand

Europe and the U.S.

The U.S. is not facing the same inflation pressures as Europe. Commodity prices are on the watch list but Janet Yellen calls the Fed's current bond-buying program the "appropriate" solution for the U.S. 

Wall Street Journal, April 12, 2011
Fed Plays Down Inflation
Inflation Concerns Weigh on Treasurys

Dollar Weakens

The dollar weakened against it's basket of currencies last week following the US government's affliction over budget cuts and a looming resolution needed on the federal borrowing limit.

The Federal Reserve's quantitative easing and the decision on the federal borrowing limit are likely to direct the movement of the US dollar over the next few months.

Wall Street Journal, April, 11, 2011
Dollar Still in a Downdraft

Government Borrowing Limits

Done with the $38 billion budget cut, next on the government’s agenda will be increasing the federal borrowing limit. Money owed to Social Security comprises the majority of the federal debt, which ended September 2010 at $13.5 trillion. As the government is on track to exceed the current limit of $14.25 trillion by mid-May, debt will either have to be restructured or the federal debt limit increased.

Increasing the federal debt limit would call for another round of budget cuts which is not going to be easy as hurdles to the debt-limit increase are likely to be the same as in the $38 billion budget cut and include the Democrats demand for Planned Parenthood funding and John Boehner and the Republicans stance on health care, the environment, and abortion rights.

Gene Sperling has been the lead administrator for the government’s strategy on the debt-limit debate. A debate which will be battling through Congress this month and has the potential to be a “recovery-ending event,” as quoted by Ben Bernanke in Calme’s New York Times article.

New York Times, April 10, 2011
Next on Agenda for Washington: Fight Over Debt

Government Shutdown is Averted

Political opposition showed in Congress as the government passed an eleventh hour bill that would cut $38 billion from the federal budget for the remaining months of this year. In his first month in the position, Speaker of the House, John Boehner was unrelenting in his Republican stance on the need to decrease funding to Planned Parenthood programs. However, in the last leg of the discussion, President Obama overruled in the debate and funding to family planning programs remained unchanged as the Democratic Party remained loyal to their support for the programs.

New York Times, April 9, 2011
Budget Deal to Cut $38 Billion Averts Shutdown

Europe's Risks and the Euro

Portugal's request for bailout caused little disruption to financial markets. The euro gained following the expected announcement and speculators see Portugal as the final country in the region to require aid.

The European Commission Bank also signaled an easing of the region's risks this week. The bank's relaxed risk outlook for Spain and control over the fiscal situation in Portugal led to an increase in interest rates and an end to expansion of bailout mechanisms for the ESF and EFSF funds.

Spain and Italy, two periphery countries on the bailout watch list, have both shown positive improvements in recent weeks as their yield curves decoupled with 10-year bond yields falling to more normal rates nearing 5.0% and 3.25% respectively. 

Wall Street Journal, April 8, 2011
No Time for Euro Complacency

Portugal Third Country to Receive Eurozone Bailout

Portugal is the third, and hopefully final, country in the Eurozone to request aid for debt repayments coming due in June. Over the course of a year the Eurozone and its allies have structured funds to provide relief to Eurozone countries unable to make debt repayments.

Initial aid required by Greece was called upon in May 2010 and since then additional structured funding created by the European Central Bank and the IMF has relaxed the risk outlook for the region. Consent by the ECB and IMF to structure available funding for countries in need of a bailout has likely stopped a widespread contagion in the region as debt is highly interconnected within the seventeen member zone.

Wall Street Journal, April 7, 2011
Portugal Pleads for Rescue

Europe and the U.S.

Interest rate policy, open market operations or bond-buying, and bank reserve requirements are three weapons central banks can use when making strategic monetary policy decisions.

In Blackstone’s Wall Street Journal article he contrasts the use of these instruments by the ECB and the US Federal Reserve as well as other central banks such as China, Japan, and England.

The European Central Bank is likely to be the first central bank to raise interest rates since the 2008 Credit Crisis. Moving rates higher would signal that the country’s capital growth is expanding.

The US Federal Reserve currently remains in a period of quantitative easing which calls for government bond-buying through June 2011.

Wall Street Journal, April 6, 2011
Central Banks Grapple With Competing Forces

Housing's Toll on Inflation Measures

Housing or shelter costs make up a large part of the Consumer Price Index (CPI), accounting for 32% of headline CPI. The Federal Reserve's more favorable price index, the Personal Consumption Expenditures (PCE), weights housing at 15%.

Rising housing costs, including rent and mortgage payments, are expected to rise through 2011 adding pressure on the Federal Reserve to increase rates to manage rising inflation expectations.

Wall Street Journal, April 5, 2011
Housing Bubble Continues to Haunt Fed

Euro Gains

The euro appears to be gaining despite Eurozone debt woes over the last year. The ECB is expected to raise rates signifying a strengthened economic outlook in Europe.

Wall Street Journal, April 4, 2011
Euro Gives Back Gains on Dollar

China's Communist Government

China is happy with the status quo and the economy has seen tremendous gains over the last decade as a result. Entrepreneurs have prospered and living standards have improved. Under the current rule the country is expected to continue as a leader in the emerging markets.

New York Times, April 3, 2011
In China 'Jasmine' Means Tea, Not a Revolt

Portugal Scrambles to Avoid Bailout

Portugal sold 1.65 billion euros ($2.3 billion) of short-term government debt in hopes of raising funds to payoff debt repayments coming due in April and June. Rating agencies reacted negatively to the offering downgrading the country's debt rating shortly after the auction.

The offering is likely to be the last effort by Portugal to avoid a bailout request which would also require implementation of strict austerity measures.

New York Times, April 2, 2011
Portugal Stages Surprise Bond Auction; Ireland Is Hit With New Downgrade

Ireland's Bailout Woes Continue

Ireland was the second Euro-zone country to request bailout from the EFSF. Ireland's request came in November 2010 following Greece in May 2010. Recent stress tests for the country have revealed further capital shortfalls of 24 billion euros. The gap is likely to call for nationalization of the country's six largest banks which would allow for government aid but turn the burden to taxpayers. Rating agencies have reacted negatively to the stress test results, exemplified by an S&P downgrade to Ireland's sovereign debt from single A minus to triple B plus.

Wall Street Journal, April 1, 2011
Ireland's Never-Ending Stress Test
Ireland's Banks Get Failing Grades
S&P Downgrades Ireland One Notch
Ailing Ireland Accepts Bailout