Leaders of the Group of 20 (G-20) developed and developing
nations failed to come up with any concrete actions in their
two-day summit meeting in a beautiful Mexican resort town. But
hardly anyone expected the Germans to agree to anything tangible
ahead of the Euro-zone summit scheduled for later next week in
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There is no shortage of workable ideas that could turn the tide,
ranging from a banking union to using the permanent bailout fund to
directly buy the government bonds of Italy and Spain. The politics
and process of implementing any of these ideas will likely be drawn
out, but coming up with a roadmap at next week's Brussels summit
will be a big achievement by itself.
Few may have expected the two-day G-20 summit to take any concrete
steps, but pretty much everyone expects the two-day FOMC meeting
concluding this afternoon to come out with something tangible. The
Fed is expected to keep the monetary stimulus party going by
announcing an extension of the current Operation Twist, which ends
later this month. Other options include a fresh bond-purchase
program or further extending the Fed's current guidance of keeping
interest rates near-zero through 2014.
Hardly anyone can credibly claim that more Fed stimulus will do any
real good to the economy, given where interest rates are already.
The only rationale for more action is that the markets have been
expecting it and the Fed doesn't like disappointing Mr. Market. The
strong market rally of recent days -- despite negative headlines
from Europe and growing signs of loss of momentum in the U.S. and
Chinese economies -- reflects these positive expectations.
Given these gains, Mr. Market may find the actual announcement of a
Twist extension to be rather underwhelming. Such a response will
get interpreted as the age-old buy-the-rumor-sell-the-news
In corporate news, we have entered the pre-announcements season and
we got two negative announcements this morning - from
Procter & Gamble
) - with Europe a common factor in both.
) shares will likely be in the spotlight after the company
announced positive results of its hepatitis C treatment.