China news

1)National Financial Work Conference

I have been following news reports of the above conference held more than a week back on the new directions that China may take in the financial sector.

Past Conferences & Outcomes

That equates to 10-20 million people moving to the modern economy experiencing annual income growth of up to 400 per cent and contributing between eight to 20 percentage points to the growth rate of aggregate incomes.

The conference is held once every 5 years. A brief recount shows the signifcance.

The first conference was held in 1997, in the wake of the Asian financial crisis------  led to a plan to remove billions of dollars in bad debt from the balance sheets of the major banks.

The 2002 meeting led to hastening the reform of those banks----  resulted in the eventual overseas listing of Bank of China Ltd., Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp.

The 3rd 2007 conference led to the establishment of China Investment Corp., the country's sovereign wealth fund.

 From 2006 to 2011-------Banks's NPLs fell to 0.9 % (2011) from 7.1 % (2006);  Banks' overall CAR  increased to 12.3 & (as of Sept 30 2011)  from 7.3% (at the end of 2006).

Recent concluded 2012 Conference

One of the key outcomes of this conference could be the manner in which China policymakers will move towards allowing the free market to set interest rates.

Following three interest rate hikes in 2011, the one-year benchmark deposit rate stands at 3.5 percent, while the loan rate is 6.56 percent, yielding an interest margin of 3.06 percent. These rates are at the moment, all determined by the PBoC and are highly biased by giving a very good margin which is protective of the Big Banks.

That high margin did much to lift banks' total assets to 119 trillion yuan ($18.84 trillion) by the end of last year 2011.

How would China move towards market driven setting of interst rates?

Deposit Insurance

One proposal eyed is deposit insurance---- which would reduce potential default risks and help drive market-oriented interest rate reform for commercial banks.

Once bank interest rates can float freely on a market basis, the interest margin is expected to contract under competition, and it may shrink the bank's profits.

Bankruptcy is normal in a competitive situation, so an insurance system is necessary to protect depositors' assets.

Market forces are expected to play a more important role in fund allocation, and the government's role will be more clearly defined, Premier Wen Jiabao said on the Saturday after the end of the two-day National Financial Work Conference.

Benefit
Competition would also help SMEs who are the ones suffering most under the tight monetary policies ( after the series of RRR rises last year) get cheaper loans and increase their profit margins.


2) CPI and PPI

Looking at the CPI and PPI Plots U would have noted that China's CPI growth has somewhat moderated at 4.1% yoy , a 15mth low. The PPI plot shows an even more pronounced downward sloping trend for growth, suggesting a possible inprovement in the CPI if producer input price increase continues to abate.
Overall for the year ended 2011, CPI was up 5.4% vs 2010 says NBS.
Remember the CPI target  inflation rate set by Premier Wen was 4%. Many in the local provinces are feeling the pinch of the high inflation and remains high on the agenda of policymakers.

China's CPI

China's PPI

While the overall CP growth is somewhat moderating, food prices remains a prime concern as it forms a massive 1/3 of the CPI basket. Overall Food prices were up 9.1% yoy in Dec. That rise contributed 2.8 percentage points, or more than two-thirds of the general price increase.

China's CPI  Food Components

All Graphics courtesy of China Daily

Food Prices are largely cost driven ----- dependent much on weather conditions (floods etc)  and the agricultural population. In other words supply rather than demand driven.

China policymakers must continue to have policies that favor the agricultural population and promote productivity in grain products as well as animal husbandry.

As China is at an early stage in the economic development path, food will constitute a big portion of the basket but will decline with urbanisation and accompanying income growth.

Lewis Point
Many economists believe China may have already crossed the so-called Lewis turning point, meaning that all excess rural labor has already been absorbed by urban areas and that structurally higher wages -- and inflation -- lay ahead.

Many provincial authorities have rushed to increase minimum wages, in line with central government plans to boost spending power and domestic consumption, despite warnings of tightening labor supply from factory bosses.

High Frequency Economics' Mr Weinberg, estimates non-farm workforce growth of 2-4 per cent a year.

That equates to 10-20 million people moving to the modern economy experiencing annual income growth of up to 400 per cent and contributing between eight to 20 percentage points to the growth rate of aggregate incomes.

3) Forex Reserves

China's forex reserves unexpectedly declined ---- to $3.18 trillion, down $20.6 billion from the previous quarter.

In breakdown, PBoC data showed that foreign exchange reserves increased by $72.1 billion in October, but decreased by $52.9 billion and $39.76 billion respectively in November and December.

Handing over the baton in China

According to Xinhua and reported by CNA , China will maintain property market restrictions and "prudent" monetary policies.

Many observers have their lenses zoomed in to the once-in-a-decade leadership changes.
No surprise on the "property market restrictions " as they were the fruits of  many incremental policies that finally managed to cool runaway property  prices. So any changes will be similarly targeted and incremental.

Xi Jin-Ping and Li Ke-Qiang are both groomed successors who have been given increasing exposures to policymaking and the top leadership changes should NOT be disruptive to the continuity in policymaking.

The signals sent out are therefore intended to ensure that 2 current "tenets":
-  Housing remains affordable
- Consumer prices (CPI) remain stable
remain in place even after the handing over of the baton. So it is very important that China do not give any nasty surprises here.

Monetary Policies and Fiscal Policies which has quite an impeccable record under the current leadership of Hu and Wen are likely to maintain "unswervingly " on course given the  signals sent out at the close of the annual Central Economic Work Meeting.


Let's look at the statements released after the meeting:

"the country will speed up the construction of ordinary commercial residential housing to increase the effective supply and promote the healthy development of the property market."

Since April 2010, China has imposed a raft of measures aiming to calm property prices. They include higher down payments, limits on the number of houses that people can own, the introduction of a property tax in some cities, and the construction of low-income housing.

The statement also said that :

"China will push forward the trials of property tax reform."

China introduced the property-tax trials in Shanghai and Chongqing at the beginning of the year as part of its efforts to curb skyrocketing home prices and contain asset bubbles.

Another part of the statement:

"China should appropriately handle the investment and financing, construction, operation and management of affordable housing projects, and progressively solve housing problems for low-income urban residents, newly-employed workers and migrant workers from rural areas."

The government has vowed to build 36 million units over the next five years in an effort to give more mid- and low-income households access to housing and stabilize runaway property prices, with 10 million units planned for both 2011 and 2012.

China's housing authorities said on Nov. 10 that the country has already met this year's goal of starting the construction of 10 million units.

This is what the incoming Li KeQiang said:

"The construction of affordable homes will help curb excessive price rises and fuel urbanization, which will in turn unleash consumption and investment potential and push the development of related industries,"

 VP Li Keqiang said in late November that the government should stick to its tightening measures over the property market and consolidate the regulative results it had achieved.

Hence the outcome of this meeting is no surprise.

More cities posted monthly home-price declines in October following the government's campaign to calm the property market.
In October, 34 cities in a statistical pool of 70 major cities saw declines in new home prices from September, compared with 17 in September, data with the National Bureau of Statistics showed.

This what the policymakers are trying to achieve: ----- a slowdown in the increase in home prices.
So the policymakers would not do an about turn now, when the policies are gaining traction. The policies have to be "calibrated" and the market would be monitored, the process of calibration via the feedback loop is a delicate balancing act.  However, if prices start plunging badly then policies would be adjusted incrementally

Will Italy do the Full Monti?

The key to ringfencing the Eurozone from the effects of contagion now lies in the austerity packages being forged in Italy and Sapin under their respective new technocratic bureaucrats.

The technocrat govt in Italy has come up with a meaningful austerity package, in effect a decree called the "Save Italy" decree----- which if carried out will put Italy back on track and away from the grasps of the bond vigilantes.

Reuters  says the 30b Euros package will be presented to the Parliament today.

Dubbed as a "Save Italy" package by Monti, it aims to raise more than 10 billion euros from a new property tax, impose a new tax on luxury items like yachts, raise value added tax, crack down on tax evasion and bring forward measures to increase the pension age.

Welfare Minister Elsa Fornero,  broke down in tears while presenting measures in the package that will mean an effective cut in income for many pensioners.

The three-year package includes a controversial pension reform that will increase the minimum pension age for women to 62 starting next year and fall into line with men by 2018, by which time both will retire at 66.

The number of years that men have to pay contributions to receive their full pensions will also be increased from the current level of 40 to 42.

The package also raises the value-added tax (VAT) -- which has already been raised by one percentage point this year -- by two percentage points to 23 %,  from the second quarter of 2012.

The whole package will be passed as an emergency decree.


Monti has said he will  be renouncing his own salary as prime minister in a gesture of solidarity, as he called on Italian to amke sacrifices.
For the decree to be in force, Monti needs parliamentary approval within 60days.

The populist Northern League, the only major party in parliament opposed to Monti's government, has said it wants a referendum on pension reforms.

Will the Italian parliament do the Full Monty (i)  and get the "Save Italy" decree passed?

Solving the Eurozone Conundrum

In the coming days, The Eurozone will again be the focal point....

Take  a look at the 10Yr Govt Bond Rates of  Eurozone countries (courtesy of Der Spiegel and Thomson Reuters).
See how the bond rates have converged after the monetary union---offering the kind of stability needed for the EU (including the integration of East Germany) to grow and prosper in the last decade with stability in the member countries bond rate.

But, the flaw of a monetary union w/o  a political union has now been discovered by bond vigilantes and the fabric is tearing and unravelling---- in the form of a Sovereign Debt Crisis or what some call the Eurozone Crisis.
 With the onset of the crisis, these rates have become  unsustainable.

The politicos in the Eurozone countries know that some thing must be done to solve this conundrum, the question is what can they possibly agree upon......

There are many emerging scenarios, I will like to share 2 possible Options.

Option One
Bilateral on-loans thru IMF
The ECB under Trichet and now Mario Draghi has been reluctant to lend ( thru bond markets or bailouts) to countries like Italy and Spain, citing moral hazard. It has also been reluctant to allow itself to be leveraged by the EFSF by acting as a lender of last resort, aka print money ----again citing moral hazards (as profligate countries will be let off the hooks and the taxpayers of the core like Germany will be left to handle the consequences associated with a weaker Euro i.e. higher long term bond rates).

Neither are they willing to buy Italian bonds of which 10yr rates are at close to 7% (making Italy’s debt financing unsustainable).

Now the talk is IMF involvement. But given the IMF’s small coffer ---- currently, the IMF has USD 389 billion (291 billion Euros) available to lend to its member countries----this may NOT be the bazooka, to shock and awe the bond vigilantes. So the talk now is to use “bilateral loans”------CBs (Central Banks) from Eurozone member countries OR even the ECB itself, loaning to the IMF (yes U read it right) and then allowing the IMF to on-loan those monies to the peripheral countries like Italy and Spain, under the IMF’s strict fiscal probity conditions. In this way, moral hazard is avoided.



Option Two
Fiscal Union thru Treaty changes in Eurozone
After talks with Sarkozy, Merkel is now pushing for Fiscal Union in the German Parliament. This is the inevitability that I have long forecasted.

Well, in essence Fiscal Union will necessitate treaty changes.
W/o Fiscal Union (i.e. treaty changes), Merkel cannot answer to the Germans (Parliament and People) for any decision to allow the ECB to be used as a leverage for the EFSF. Any bailouts ----in fact, any help to the peripheral countries like Italy or Greece---- will come with moral hazards. Leaders like Berlusconi (previous Italian PM) could just renege on their vague promises for austerity w/o consequences.

Countries like Britain (Cameron faces challenge from his Conservative base) may resist any such treaty changes to the EU thru the EC. So, if there are deep seated objections, the treaty changes may just be limited to the 17 Eurozone countries, NOT the 27 member EU.



Can CBs solve Fiscal Woes?
Definitely, Not!!

But, CBs can buy time for Fiscal Solutions.

By allowing the crisis to roil and boil, Merkel has created the urgency and the need for action. The 17 member states of the Eurozone and the electorate in each of them knows that the monetary union is at the precipice. It would breakup and fall off the cliff w/o an accompanying fiscal union. The will and the justification for that change is there; past debate.

But, we can see 3 interesting scenarios that have emerged with regard to CBs actions:-

1) Britain with Inflation > 2%. But, with BoE prepared to do QE.

2) US with inflation <2%.

But with the hawks like Plosser, Lacker and Fischer calling for a stop to such easing; pointing that such liquidity measures cannot replace fiscal measures and will lead to massive inflations, if not properly managed. Operation Twist involves NOT just changing the mix of the type of Treasurys (in terms of length of maturities) but could also involve large scale re-investment into Housing MBS, to drive mortgage rates down. This is tantamount to the FED venturing into Fiscal Policies, which Plosser has warned ---- “ he would oppose such a plan, which he sees as crossing the line into fiscal policy since it represents de facto credit allocation to a specific sector.”



3) The question now is what will the ECB under Mario Draghi do?

The lastest PMI results, I have posted all shows the Eurozone contracting; both the core and the periphery!!

Under Trichet, the ECB acted to lower bond rates in the peripheral countries like Italy but, any such buys were sterilized, so as NOT to be inflationary in nature.

Draghi has been very careful with his bond buying, signaling that there were moral hazards and until the politicians sort it out--- the ECB will not get involved in a BIG way.

The signals are that Draghi will act decisively only if  moral hazard is removed with a firm road map to Fiscal Union via treaty changes.

So what the ECB do will depend on the outcome of the Merkel-Sarkozy Summit, today and the crunch Brussels Summit; in the coming days to forge that Fiscal Union.



My Thots….

Option One is probably the fall back Option, should Option Two fail.

But the situation has become so dire that given the stakes involved, the Fiscal Union Option might just be pushed thru; allowing Draghi and the ECB to act.

PBoC news

Here is collection of various reports  concerning PBoC....

M2

M2 statistical coverage has been changed.

It now includes 2 new items...
1) Deposits of non-deposit-taking financial institutions (Investment Banking, Wholesale Banking)  in deposit-taking financial institutions
2) Deposits of housing provident fund
The change is to reflect and take into account the development  and use of  newer financial instruments. Both are already in substantial volume and have relatively large impact on money supply.


Based on the expanded coverage,
M2 posted 81.68t RMB (in Oct 2011)  and 72.35t RMB (in Oct 2010),
OR 12.9% yoy UP.
That is, (81.68-72.35)/72.35*100%=12.9%.

Note that this is  already reflected in the Oct 2011 statistics




FOREX Reserves

Officially stands at  USD 3.2t





 Home Prices

A Reuters report dated December 2, 2011, says that the PBoC think that Home Prices are at a turning point.

Reuters Excerpts...           BEIJING - Chinese home prices are at a turning point and banks are concerned about a possible 'chain reaction' if they were to fall by 20 per cent, the central bank said on Friday. 'Real estate investment growth eased, developers' cash flows tightened, land transactions and prices fell, property loan growth moderated and there are early signs that property prices are at a turning point,' the People's Bank of China said in a statement published on its website. Chinese home prices fell in October from September for the first time this year, official data showed, but a private survey has indicated that November could mark a third consecutive monthly fall

What does this means, in policy terms?
Likely, there will be a turning point in the monetary policies.
The polcymakers wants to see a gradual incremental trend in housing prices.
NOT a precipitous 20% drop that will have drastic consequences on banks and their NPLs.

PMI News

US

US ISM Manufacturing PMI was the surprise this round.

PMI	52.7	50.8	+1.9	Growing
New Orders	56.7	52.4	+4.3	Growing
Production	56.6	50.1	+6.5	Growing

If seen together with the ADP Employment data, the US Private Sector, in particular the Manufacturing sector seems to be on the mend.



China

 China's CFLP PMI (at 49.0%) and HSBC PMI ( at 47.7%)  both correlates and tells the story that policymakers have over tightened and that the Manufacturing Sector is in contraction.
These two sets of data is likely the key reason for the announced cutting by the PBoC, of the RRR by 50 basis on 5th Dec. This can be seen as an inflexion point where the policies could be reversed (i.e. loosened) from now on.




Eurozone

Eurozone PMI data is rather bleak.

Countries ranked by Manufacturing PMI® (Nov.)
Ireland 48.5 2-month low
Germany 47.9 28-month low
Austria 47.6 28-month low
France 47.3 29-month low
Netherlands 46.0 29-month low
Italy 44.0 2-month high
Spain 43.8 2-month low
Greece 40.9 2-month high

Both the Core and the periphery are in contraction .

4 Positives

Positive One
ADP Employment  report

The ADP Employment Report  for Nov 2011 has continued to trend up.

U.S. Nonfarm Private Employment Highlights – November 2011 Report: Total employment: +206,000 
 Small businesses:* +110,000
 Medium businesses:** + 84,000
 Large businesses:*** + 12,000
 Goods-producing sector: + 28,000
 Service-providing sector: +178,000
Addendum:
 Manufacturing industry: + 7,000

As with previous mths, the Service Producing Sector  and Small and Medium Bizs continues to be the star performers.
The surprise is that manufaturing carved out a 7K gain; giving the previously moribund Goods-producing sector aboost to 28K jobs added.

This set of data which correlates well with BLS data bodes well for the Friday release.


Postive Two
CBs Act

See CNBC

Central Banks (CBs) take co-ordinated actions by providing liquidity swaps.
Mainly, involves ECB and the FED; to ease the credit crunch in Europe.
There is apparently a  credit crunch in the USD wholesale market and the FED is opening swap lines for the ECB to ease that crunch.
The participation of the CBs from Canada, England, Japan and Switzerland helps to boost the Bazooka effect  and shows that the CBs are united in helping the ECB , if  indeed it needs the help.
It shows  that ECB's head Mario Draghi, may be stepping up--- now  that it is clear that the politicos (Merkel & Sarkozy)  have agreed that the path to fiscal union is the way to go.


Positive Three
US NAR Pending Home Sales

Pending Home Sales Index for Oct 2011; which is a leading indicator of EHS ( Existing Home Sales) jumped 10.4%


Positive Four
China cuts RRR

In my last post on this topic, Reuters suggest that the cuts in RRR will happen, only next year .
As in the past, the PBoC wrong footed them again.
The RRR will be  cut by 50 basis pts from Dec 5.
This suggests that the policymakers are ready to ease the tightening measures that have made credit difficult to get for many SMEs .

China's RRR

Is China cutting its RRR (Reserve Requirement Ratio)?

This Reuters article dated 24/11/2011 and the one below, seems to suggest that PBoC could be moving in that direction.

Sources told Reuters earlier this week that the central bank had cut the reserve requirement ratio for five banks in the eastern province of Zhejiang, a centre for private enterprise, by 50 basis points to 16 per cent to support the rural economy.
But the Financial News, published by the People's Bank of China, quoted the central bank's Zhejiang branch as saying that the fall in the reserve requirement ratio for six rural banks to 16 per cent had kicked in automatically after a one-year policy plan expired this month.
Some investors had speculated that the adjustment was part of a government campaign to relax monetary policy in some quarters of the economy. The talk gained traction after a manufacturing survey showed output at a 32-month low in November.
The newspaper said the central bank reviewed the third-quarter loan books of rural banks every November, and banks that did not lend freely to farms were punished with a 50-basis-point rise in reserve requirements.
The six banks in question were penalised a year ago and the penalty lapsed in November, the newspaper reported.
'The revision of the reserve requirement ratio of these banks to a normal level should not be interpreted as a cut in their reserve requirements,' the paper said.

But, it must be noted that the "upping" of the RRR last Nov , was to punish these same  rural banks for NOT lending to the farms.

The following 2nd article, again from Reuters, same date, suggests that the cuts in the RRRs may happen, next yr.

Excerpts....

China could cut its reserve requirement for all banks in the first three months of 2012, a senior Chinese banker said on Thursday, adding to talk that a fast-cooling world economy may lead Beijing to relax monetary policy.

China's central bank has not metted out any substantive monetary tightening measures since mid-July for fear of crimping economic growth at a time when Europe's debt crisis is hurting exports.
'There is possibility of a cut in the reserve requirement ratio in the first quarter, and the tone of macro policy will change during the central economic work conference,' said Huang Jifa, deputy head of investment banking at the Industrial and Commercial Bank of China.
Industrial and Commercial Bank of China is the world's biggest bank by market value.
The central economic work conference is an annual year-end meeting of top Chinese policy makers where a blue-print of the following year's economic policy plans and targets are decided.
The meeting is expected to be held in coming weeks.
'If policy remains as tight as before, some problems will emerge, including in the property sector,' Mr Huang told reporters on the sidelines of a debt conference in Beijing.
The reserve requirement ratio for China's biggest banks is at a record high of 21.5 per cent and has drawn complaints from bank executives, who say the unduly steep ratio hurts profits by restraining banks' ability to lend.

However, I would not bet on this speculation; simply becos Reuters and many in the biz media has always been wrong-footed by PBoC when they were upping the RRRs.....

FED Stress Test

See FRB announcement last nite.

What it involves?
BHC (Bank Holding Cos) or FIs (Financial Insitutions) with total consolidated assets > USD 50 b

Aim
1) To ensure FIs have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress.
2) Institutions will be expected to have credible plans that show they have sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions, and are well prepared to meet regulatory capital standards agreed to by the Basel Committee on Banking Supervision as they are implemented in the United States.
3) Boards of directors of the institutions will be required each year to review and approve capital plans before submitting them to the Federal Reserve

Required under the newly legislated Dodd Frank Act.
- the Federal Reserve annually will evaluate institutions' capital adequacy, internal capital adequacy assessment processes, and their plans to make capital distributions, such as dividend payments or stock repurchases.
-the Federal Reserve will approve dividend increases or other capital distributions only for companies whose capital plans are approved by supervisors and are able to demonstrate sufficient financial strength to operate as successful financial intermediaries under stressed macroeconomic and financial market scenarios, even after making the desired capital distributions.

Who?
-  the 19 firms* that participated in the CCAR in 2011, also the same 19 that took part in SCAP for TARP.
-  12 additional firms** with at least $50 billion in assets that have not previously participated in a supervisory stress test exercise.

Tests A : Instructions for the 19 firms
Tests B: Instructions for the 12 aditional firms

Tests A are considered one of the most stringent Stress Tests to-date.
Hypothetical stress scenario:
Unemployment  at 13 %
US GDP  fall 8%

Tests B are  scaled-back tests on the capital plans of 12 more financial firms  and considered less complex.

* The 19 bank holding companies participating in the 2012 CCAR are:

Ally Financial Inc., American Express Company, Bank of America Corporation, The Bank of New York Mellon Corporation, BB&T Corporation, Capital One Financial Corporation, Citigroup Inc., Fifth Third Bancorp, The Goldman Sachs Group, Inc., JPMorgan Chase & Co., Keycorp, MetLife, Inc., Morgan Stanley, The PNC Financial Services Group, Inc., Regions Financial Corporation, State Street Corporation, SunTrust Banks, Inc., U.S. Bancorp, and Wells Fargo & Company. These 19 firms also participated in the 2011 CCAR and the 2009 SCAP.

**The 12 bank holding companies participating in the CapPR are:

 BBVA USA Bancshares Inc., BMO Financial Corp., Citizens Financial Group Inc., Comerica Inc., Discover Financial Services, HSBC North America Holdings Inc., Huntington Bancshares Inc., M&T Bank Corp., Northern Trust Corp., RBC USA Holdco Corp., UnionBanCal Corp., and Zions Bancorporation.

Period
3Q2011 to 4Q2013  with exception for trading and counterparty positions according to the Basel III and Dodd‐Frank schedules.

Why?
1)  Key purpose, here is transparency in a time of great uncertainty.
Transparency breeds  and bolsters confidence and keeps out nasty "rumors" about BHCs  B/S exposure to assets in the Eurozone.

2) It will put the burden on the affected BHCs to prove they can make a capital distribution (aka dividends), NOT on the Fed to block it-------likely that BofA and CitiGroup will have to pare down dividends as a result!!

3) Tests B are NOT required under the Dodd Frank Act as these FIs are under the USD 50b cap.
Nevertheless, if they have to go to the FED for aid in a crisis they have to satisfy the tests requirements; and the FED seems to be very prudent and cautious in including these other 12.

Lucas Papademos

Analysis: Lenders seen swallowing Greece's 80 bln euro demand
  Ben Harding
ATHENS | Thu Nov 17, 2011 5:24am EST

ATHENS (Reuters) - Greece needs 10 times more aid in January than the 8 billion euros it is scrambling to secure by next month. International lenders are likely to grit their teeth and pay both bills to prevent a messy default that could take down Italy as well.Greece says lenders will need to frontload their proposed 130 billion euro bailout for Athens with an initial 80 billion euros because of the vast sums needed to cut private sector debt without destroying Greek banks in the process.

European leaders say Greece has consistently failed to sell state assets, chase tax evaders and slash the public sector as promised, prompting the exasperated leaders of France and Germany to openly suggest last month Athens might quit the euro.

"While they may well want to threaten Greece, when push comes to shove, euro zone governments may opt to put off disorderly default ... and the Greek government is aware of that," said Ben May at Capital Economics.

Finance Minister Evangelos Venizelos is frank about Greece's urgent need for a big slice of the second bailout -- even before its lenders from the European Union, International Monetary Fund and European Central Bank have signed off on the release of the prior loan, needed by mid-December.

"The next loan tranche ... is not like the sixth tranche of 8 billion euros but more than 80 billion euros in total," he told parliament on Tuesday, adding Greece would need it by early February at the latest.

GREECE HOLDS THE CARDS
New prime minister Lucas Papademos, a respected former European Central Bank vice-president, has made the bailout, agreed in Brussels last month, his coalition's top priority.

But while euro zone lenders appear to have the whip hand as the clock runs down, the trauma of a Greek default would still be too painful for the rest of the common currency area.

Though Greece, with 360 billion euros of debt, is a far smaller systemic risk than Italy, any withholding of financial aid would shatter an assumption that the euro zone will support any member in trouble.
Italian bond yields have burst through the psychologically key 7 percent barrier as political turmoil has stoked fears it lacks the means or will to fund its 1.8 trillion euro debt pile.

"Maybe the effect of Greece leaving the euro zone is priced in ... but the likelihood that Italy would then default has increased, so it becomes even more expensive to save Italy," said Christian Schulz, Senior Economist at Berenberg Bank in London.

Diego Iscaro, at IHS Global Insight in London, said he expected Paris and Berlin to grumble but ultimately to agree to the large tranche since Europe's EFSF bailout fund lacks the firepower to save Italy, making a Greek firewall more important.

"I think Athens' position is stronger than many on the outside realize."

THE 80 BILLION EURO QUESTION
One risk is that Greece's feuding parties use Papademos to secure the massive first installment of a new bailout program, then once his three-month mandate expires, revert to politics as usual. Since they will have had most of the money in one dollop, some may feel the remainder is not worth all the political pain.

Still, Athens can ill afford to slacken the pace of austerity as it will see little of the 80 billion euros before it flies out the door again.

Thirty billion will go to recapitalize Greek banks in order to absorb losses on a key pillar of the deal -- an agreement between banks, the EU and Greece to halve Athens' 200 billion euro debt to private sector bondholders.

To secure this private sector involvement (PSI), a further 30 billion euros will go to bondholders to sweeten the haircut, with one suggestion that they receive 30 percent of the discounted bonds in cash.
Greece said earlier on Thursday it had begun negotiations with banks to thrash out the swap of existing bonds for longer maturing, discounted paper.

Charles Dallara, head of the Institute of International Finance (IIF), which represents the banks, said before meeting Papademos in Athens on Wednesday that there was limited flexibility on the plan's terms to ensure it remained voluntary.

Adding urgency to the PSI negotiations is a tentative target for fresh parliamentary elections on February 19.

Only 20 billion euros of the 80 billion estimated by Venizelos will flow into state coffers and what it will be used for is unclear, reflecting the embryonic state of the PSI talks.

Five billion euros will go toward clearing debts to suppliers who have kept the country running, leaving the remaining 15 billion euros to pay for bond redemptions.

That war chest could be swallowed whole by a 14.5 billion euro bond which matures on March 20, according to Reuters data.

Creditors on the three-year issue are unlikely to accept any significant haircut or extension of its maturity this close to redemption, analysts said, particularly since the hit to net present value would be all the greater.

Neither Greece's finance ministry nor the country's debt agency would comment on what debt it would target with the 'spare' 15 billion euros.

In all, Greece has still to repay 8.7 billion euros up to the end of this year and 22.4 billion euros from January to end-March, Reuters data shows.

Athens estimates the PSI deal will save it 4.5 billion euros a year in interest repayments, but analysts say even that will not prevent a further default down the line, since Greek debt would still be at an "unsustainable" 120 percent of GDP by 2020.

"We would not be surprised to see further debt restructurings down the line," says Capital Economics' May.

"Greece could continue to play ball if it feels that the costs of defaulting are greater than the benefits, but in our view, at some point, Greece will feel it needs to restructure its debt again because it's simply too costly."

____________________



My Thots...
The greatest uncertainty in Greece is that of political risks.
Lucas Papademos will deliver but can he stay after Feb?
Will Antonis Samara honour the agreements that Greece under Papademos made with the Troika, should he be elected?

Mario Monti

Italy's PM unveils anti-crisis plan

Posted: 17 November 2011 2230 hrs

ROME: New Italian Prime Minister Mario Monti said on Thursday that the future of the euro also depended on Italy, during his first speech in parliament in which he unveiled a plan to tackle the crisis.

"The future of the euro also depends on what Italy will do in the next few weeks," he said, adding that his new technocratic cabinet would implement "austerity measures" which would be balanced by "growth and equity".
The former European commissioner said Europe was living through "the most difficult years since the second world war" and warned that the European project "could not survive the collapse of the monetary union".

He said Italy must stop being considered Europe's "weak link", otherwise "we risk becoming partner to a model we have not helped build", and which could instead be built by countries "who do not want a strong Italy".

However, he added: "We don't consider the European obligations to have been imposed by external forces. It's not a case of them on one side and us on the other. We are Europe."

"We need measures to make the economy less fossilised, help new industries to grow, improve public services and favour youth and female employment."

Monti, whose economic programme had been hotly awaited by global leaders, said he intends to overhaul the labour market and pensions system, which has "unjustified privileges for certain sectors".

Both are measures the European Union has called for and their inclusion in the announced reforms is expected to reassure markets.

Monti also said he hoped to reduce labour tax and look into re-weighting estate tax, adding that the absence of property tax on main households since it was abolished under the former Silvio Berlusconi government was an Italian "anomaly".
"If we fail, if we don't carry out the necessary reforms, we will also be subjected to much harsher conditions," he warned.

The premier, who took over from the ousted billionaire Berlusconi on Wednesday, said the "absence of growth cancelled out sacrifices" and promised to respect Italy's timetable to balance its budget by 2013 and reduce its debt.

Monti's speech was well received, and the Senate speaker had to intervene and call on members of parliament to listen rather than applaud wildly.

- AFP/al

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My Thots....

Not yet the full Monty.

So far so good, for Italy under Monti.

Iron Ore Swaps

Published November 17, 2011

BOC unit plans iron ore swaps business (SHANGHAI) A unit of the Bank of China (BOC), one of the country's top four banks, is planning to kick off an iron ore swaps business next year in a bid to tap growing demand for hedging from steel mills and traders, two sources familiar with the matter said.

The entry of a major bank from the world's top iron ore buyer could bolster liquidity of the nascent swaps market, and signal a further warming to derivatives in China's state- dominated steel sector as prices of the main raw material become more volatile.

BOC International (BOCI), the investment banking arm of the state-owned bank, aims to provide brokerage services, proprietary trading of iron ore swaps as well as physical trading.

'The bank plans to start an iron ore swaps business in the first half of next year, with the aim of providing hedging services for domestic players first,' said one of the sources. 'It also plans to apply for clearing membership in the Singapore Exchange (SGX) next year.'

BOCI was approved as a clearing member of CME Group in March. The CME and SGX both offer clearing of iron ore swaps, with the bulk of globally traded volumes cleared on the SGX.

The source said that BOCI has also applied for category two membership on the London Metal Exchange (LME), which would give it access to all types of LME business except ring trading.
A spokeswoman for BOCI said that she could not immediately comment.

Demand for iron ore derivatives has swelled in recent years given a shift away from annual contracts for the commodity, with a growing number of investment banks and traders venturing into the sector.

The move by BOC is the latest sign that Beijing is moving onto the global stage as it looks to play a greater role in setting world prices for the raw materials that power its fast-growing economy.

Earlier this year, Chinese regulators allowed three of the country's futures brokerage firms to prepare to participate on overseas commodity exchanges.

The overseas foray by BOC and other brokerage firms will help overcome the advantage that foreign banks currently have in helping Chinese firms hedge overseas.

But growing demand from Chinese firms for hedging could also see Beijing accelerate the pace of opening domestic commodity exchanges, the world's largest by traded volume, to foreign players.

'The market certainly needs the big liquidity boost coming from China to make this a market where you can genuinely hedge physical risk,' said an iron ore swaps broker in Singapore.

'If it happens, it shows a bit of softening in China's stance on derivatives,' he said.

Last year's breakdown of a 40-year-old system of pricing iron ore annually in favour of a more flexible quarterly scheme encouraged some Chinese mills to consider hedging risks via swaps, although many remained wary.

Baosteel Group, China's second-biggest steelmaker, in September warned Chinese mills to exercise caution in trading swaps, saying that global miners were able to influence index reference prices used in swaps.

Launched in May 2008, iron ore swaps are cash- settled contracts that allow steelmakers and traders to hedge price risks.

The volume of globally traded swaps soared to an all-time high above nine million tonnes in October, with SGX clearing a record 7.5 million tonnes, as prices gyrated wildly.

Iron ore gained 25 per cent in the past 12 trading days, after sliding nearly 31 per cent in October when Chinese mills cut purchases of iron ore as lower steel prices reflected weaker demand.
Iron ore rose nearly 6 per cent to US$146.30 a tonne on Tuesday, according to the Steel Index. -- Reuters

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My Thots....

Potential game changer.

China's CPI Release

 China's Consumer Price Indices in October

 

Albeit, still high, the CPI is trending down for the past 3 mths.

At 5.5%, and with the Eurozone in crisis, the policymakers will likely take their foot off the brakes on Monetary policies tightening.

China's Producer Price Indices in October

Reading the PPI figures, in tandem with the CPI figures, confirms the downward trend in prices.
PPI is a strong predictor of CPI trends and the sharply falling growth trend in the PPI augurs a soft landing for the Chinese inflation picture.


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My Thots.....

Many of the SMEs, especially local S-chips who are suffering from the recent credit squeeze caused by higher interest rates and higher RRRs, as well as a rising RMB, will be able to breathe better going forwards, as the Chinese policy makers adjust to a more pro-growth stance and ease the tighthening measures.

Technocrats to run national unity govts

Berlusconi humiliated in parliamentary vote

By Barry Moody and James Mackenzie

ROME | Tue Nov 8, 2011 10:46am EST

ROME (Reuters) - Italian Prime Minister Silvio Berlusconi suffered a huge humiliation in parliament on Tuesday in a vote that indicated he no longer had a majority and ratcheted up pressure for him to resign.Berlusconi's government won a key budget vote after the opposition abstained but obtained only 308 votes compared with an absolute majority in the lower house of 316 votes.

Opposition leader Pier Luigi Bersani immediately called on Berlusconi to resign, saying Italy ran a real risk of losing access to financial markets after yields on government bonds had approached the red line of 7 percent.

"I ask you, Mr Prime Minister, with all my strength, to finally take account of the situation ... and resign," Bersani said immediately after the vote.

Berlusconi has been on the ropes for weeks but Tuesday's events seem to be pushing him toward inevitable resignation.

Earlier Berlusconi's key coalition ally, Umberto Bossi, head of the devolutionist Northern League, told him to step down as the 75-year-old media magnate suffered a series of what could be mortal blows.

Bossi said Berlusconi should be replaced by Angelino Alfano, secretary of the premier's PDL party.
"We asked the prime minister to stand down," Bossi told reporters outside parliament.

Berlusconi had remained defiant ahead of Tuesday afternoon's vote on a public finance measure, rejecting calls from all sides to step down and desperately trying to win back a large group of rebels in the PDL. The vote showed that he had not been able to stem a major rebellion.

Bossi's action and the parliamentary vote could finally tip the balance against him as red lights flash on bond markets about Italy's instability.

The League, together with many members of the PDL, are believed to want Berlusconi to make way for a new center-right government capable of tackling a huge economic crisis and restoring the confidence of markets without handing power to a transitional administration.

Earlier five PDL rebels said they would not take part in the vote on public financing, sapping Berlusconi's support.

The center-left opposition said they abstained to lay bare the weakness of Berlusconi's support while allowing the passage of a bill that is vital for government funding.

"LONG AGONY"
While Berlusconi's demise has turned into what commentators are calling a "long agony," interest rates on Italy's debt have soared to levels that are causing deep concern about the survival of the euro zone if its third largest economy cannot service its debts.

Yields on Italy's 10-year benchmark bonds rose to 6.74 percent on Tuesday before dropping back. Analysts said Italy was reaching the point where Portugal, Greece and Ireland had been forced to seek a bailout.

Finnish Prime Minister Jyrki Katainen said Italy was just too big to bail out. "It is difficult to see that we in Europe would have resources to take a country of the size of Italy into the bailout program," he told parliament in Helsinki.

As the spread between Italian and German bonds -- a reflection of the extra risk of holding Italian bonds -- approached 5 percentage points, Italian employers' association leader Emma Marcegaglia said: "We can't go on like this for long."

Analysts say current interest rates, if maintained for long, would cancel out the budget savings planned as part of a painful austerity program.

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My Thots....

Papandreou gone, Berlusconi going...
Likely, Greece & Italy will be run by technocrats (NOT politicians), who are pushed forward by neccessity to lead the national unity governments  and who can have the credibility to negotiate with the troika and the capability to implement  the measures agreed upon.

BLS EMPLOYMENT SITUATION – OCTOBER 2011

http://www.bls.gov/news.release/pdf/empsit.pdf

* Nonfarm payroll employment trended up in October (+80,000)
* Unemployment rate was little changed at 9.0 %

MoM change in K

Category....................................Oct...........Aug...........Sept.................Oct.

 .................................................2010.......2011........2011p...........2011p

Total nonfarm.............................171.........104............158....................80

Total private..............................143...........72............191..................104

Goods-producing........................1............-13.............29...................-10

Private service-providing1........142............85............162.................114

Government................................28............32.............-33.................-24

Thots & Observations....

1) The change in TNFP (total nonfarm payroll) employment for August was revised from +57K to +104K and the change for September was revised from +103K to +158K.

 IMHO, it shows that the BLS preliminary estimates data tend to be adjusted upwards in future mths as more data streamed in; only to follow the ADP Private Payrolls data.

2) So jobs add in the previous 2 mths had been underestimated.

3) As with the ADP data, Goods-producing industries remain weak, whilst the Service Providing Industries power on.

4) Govt Sector continues to be weak, with the State govt losing 20K jobs.

ECB Bonds Purchases

ECB rate cut was pre-emptive, bond buys temporary -Stark

Fri Nov 4, 2011 10:38am EDT

* Says Draghi made clear bond-buy programme is temporary* Puts onus on governments to tackle crisis via reforms
* Suggests Thursday's rate cut should have been expected
* Sees "strong cooling" of economy

By Sakari Suoninen and Eva Kuehnen

FRANKFURT, Nov 4 (Reuters) - The European Central Bank's interest rate cut on Thursday was a pre-emptive strike, policymaker Juergen Stark said on Friday, and urged the bank to call an early halt to its sovereign bond-buying programme.

The comments by Stark, who will step down from the bank's six-strong Executive Board at the end of the year, signal the ECB is not preparing to cut its key policy rate again this year.

He also stressed that the bank's programme of buying sovereign debt was temporary and dismissed suggestions it should be made permanent even as the ECB faces pressure to ramp up purchases to tackle the euro zone debt crisis.

The controversial programme has increasingly come into focus as the debt crisis has deepened due to uncertainty about Greece's future in the euro zone. Many analysts see ECB bond buying, and the firepower it could unleash, as the only way to steady markets.

Stark is quitting the ECB early this year in what sources have said is a protest against the bond-buying programme.

The ECB's new president, Mario Draghi, said on Thursday the programme was "temporary" and "limited", reiterating the stance of his predecessor Jean-Claude Trichet and suggesting Draghi wants to keep up pressure on euro zone governments engulfed by the debt crisis to reform.

"Mario Draghi made clear that this is a temporary measure and it's no secret that I have never been a particular fan (of the programme)," Stark told a conference in Frankfurt.

"I expect that we should end this programme as soon as possible, because it sets false incentives for member states, for governments to bring their budgets in order."

After the event, Stark expanded on his comments, ruling out making the programme permanent, as was suggested during the Cannes G20 meeting.

"This is not an option," he told reporters.

Stark suggested markets were wrong to have been surprised by Thursday's ECB decision to cut rates to 1.25 percent at its first policy meeting under Draghi.

"Yesterday's decision has nothing to do with pragmatism," Stark said, adding that he made the proposal to cut rates.

"We are witnessing a strong cooling of the global economy and in the euro zone."

But, he also flagged that the ECB plans to keep rates on hold until at least the end of the year.

"We anticipated the deterioration of the economic situation over the next couple of weeks, so this was a pre-emptive decision," the German said. "We never pre-commit, but I would like to stress this was a pre-emptive decision."

Stark's fellow Executive Board member, Jose Manuel Gonzalez-Paramo said on Friday that inflation should remain the central bank's priority.

"Monetary policy must remain focused on its key objective of delivering price stability," he said in Madrid.


SELF-HELP PROGRAMME
Stark's opposition to the ECB's bond buying is based on a belief, shared by many at the central bank, that the onus should be on the crisis-hit countries to make economic reforms and fears that ECB market intervention, which can reduce government borrowing costs, could reduce their incentive to reform.
Stark said euro zone countries receiving aid from their wealthier peers must use that help to put themselves on a stable footing.

"Solidarity is not a one-way street," he said. "It calls for input from both sides, from those who give as well as those who take. The financial support of the donor countries helps the crisis states to buy time to carry out reforms."

ECB bond buying has helped keep surging Italian bond yields in check as Italy's high debt has become a focus of market attention. Italy agreed late on Thursday to allow the IMF to monitor its progress in carrying through economic reforms whose delay has sapped market confidence in the country and ravaged its government bonds.

Draghi, himself an Italian, gave no hint on Thursday that the ECB's bond-buy programme would be accelerated despite the chaos in Greece threatening to engulf the much larger economies of Italy and Spain.

"At this juncture they want to stress that they don't see it as their remit to be the lender of last resort to governments," RBS economist Nick Matthews said of the ECB, adding that the central bank still wanted markets to function in an orderly way to allow the transmission of its monetary policy.

"If the governments are trying to put the Italian politicians under pressure to put in place the necessary reforms, you don't want to let them off the hook by all of a sudden buying huge amounts of their bonds," he added. "So it's a balancing act we've got here."

Matthews expected the euro zone's rescue fund, the European Financial Stability Facility, would have insufficient firepower to restore order to markets, even if it is leveraged to 1 trillion euros, and that the ECB would ultimately have to increase its bond purchases.

"We think that ultimately they will be forced to step up massively their bond purchases in order to prevent a new escalation of contagion risks across the system," said Matthews, who was among a minority of economists who forecast the ECB's rate cut on Thursday.

ECB under Super Mario

ECB’s Mario Draghi Offers Hope He Can Do What Europe Needs.

By the Editors Nov 4, 2011 7:00 AM GMT+0800

The new head of the European Central Bank demonstrated yesterday that’s he’s ready to step in to support the euro-area economy. We hope that also means he’s willing to do what it takes to save the euro.

After only three days as president of the ECB, Italy’s Mario Draghi oversaw the euro area’s first interest-rate cut in more than two years, lowering the central bank’s target rate by 0.25 percentage point to 1.25 percent. The decision surprised investors and economists, most of whom had expected Draghi to hold rates steady in his debut meeting at the ECB’s helm.

In the subtle game of monetary policy, it was a bold move, and one that could distinguish Draghi from his predecessor, Jean-Claude Trichet. The ECB’s primary mandate is to control inflation, which is currently running at 3 percent, well above the central bank’s 2 percent target. But Draghi, with the unanimous support of the bank’s 23-member Governing Council, put more weight on the deteriorating outlook for the euro-area economy, which he says is headed for a recession.

The big question now is where Draghi will stand on a larger issue: Whether the ECB will pledge the trillions of euros needed to guarantee the financing needs of solvent euro-area governments. The central bank, with the power to print euros, is the only European institution that can credibly make such a promise, which would be the linchpin of any plan to resolve finally the region’s sovereign-debt crisis.

 

No Backstop

Under Trichet, the ECB had been unwilling to be the euro’s backstop. Together with Germany, the bank has essentially been betting that the threat of financial disaster will maintain pressure on countries such as Italy to agree to reforms, including a European authority that could take over the finances of troubled governments. It’s a laudable goal, but one that could take years to reach, whereas a market meltdown could do irreparable damage to the global economy in a matter of weeks.

On the surface, Draghi’s position is identical to Trichet’s. In a news conference yesterday, he said the central bank can’t do politicians’ jobs and act as the lender of last resort to governments. He characterized the bank’s purchases of government bonds, which amount to some 174 billion euros ($240 billion) so far, as “temporary” and necessary to restore “the functioning of monetary policy transmission channels.”

Draghi, though, has vast leeway in interpreting that last clause, which is central banker-speak for intervening in various markets to make sure interest-rate policies have the desired effect. In an emergency, it could be used to justify a blanket guarantee on newly issued government debt. After all, if credit markets freeze on concerns that European governments can no longer borrow, monetary-policy transmission channels -- even at a target rate of zero -- won’t function very well.

If and when Draghi finds himself staring into the abyss, we hope he’ll remember the mantra of Federal Reserve Chairman Ben S. Bernanke during the 2008 crisis: Do whatever it takes.

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My Thots...

Shorts be forewarned.
Super Mario passed his 1st test with flying colors!!
He might be amenable to using the ECB to leverage on the EFSF for the bazooka effect (aka TARP starring Bernanke & Paulson). Something the legacy driven  conservative Trichet  was reluctant to do.
There should now be no doubts in the bond vigilantes' minds, whatsoever,  that he will be prepared to buy bonds of Italy and Spain, in the secondary mkts to bring down  premiums over bunds, to alleviate  and bring down borrowing costs in a crisis.

That photo of Super Mario propping up the Euro with his finger is no illusion!!

FOMC Statement

Release Date: November 2, 2011

For immediate release

Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
 
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.


Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.


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My Thots....

To me the biggest positive comes from the attached release :-   http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20111102.pdf

if U look at Pg 2 of the slides, U will see quite a benign outlook for the US economy....
1) GDP is expected to trend up to 3 to 4+ % in 2015
2) Unemployment rate is expected to trend down to 6.5 to 7+% in 2015
3) PCE inflation is expected to trend down  to 2% and stay at 2% levels from 2013 to 2015.

Now let's revert our discussion to the FOMC Statement.

3 Points stand out:-

1) The FOMC observation that 3Q outlook strengthened; in spite of weaknesses in the labour mkts and the non residential structures categories.
2) The statement that FOMC anticipates that Unemployment rate will decline---- but, only gradually towrads its 2% mandate.
3) That the FOMC is maintaining Op Twist but is prepared to do QE 3.0 (adjust the size of those holdings), if  appropriate.

IMHO, a positive and benign outlook for the US economy; provided that the Eurozone do not fall off the cliff.