QE trio losing a member?/FOMC battle

The infamous QE trio of the US, UK and Japan may be on the cusp of losing a member. UK Q3 GDP rose twice expectations at a 3.2% annualized rate and combine this with y/o/y CPI gains at 3%+ for 9 straight months and the BoE may have to think twice about pulling a Fed. In response, the 10 yr Gilt yield is rising to a 1 month high and the pound is sharply higher. S&P also raised its AAA UK rating outlook from negative to stable in response to the tough budget cuts announced by the new gov’t. French consumer confidence rose to an 8 month high and Italian confidence went to a 6 month high while German consumer confidence held at the highest level since May ’08. The fly in the ointment in Europe is a sharp selloff in Greek debt after Pimco’s El-Erian said Greece will likely default over the next few yr’s because the debt hurdle is insurmountable without a restructuring. Also, disappointing earnings from UBS and MT are weighing on European stocks.

With just a week before the FOMC announces another round of money printing, which the persistent dissenter Hoenig last night called “a very dangerous gamble going forward,” the 10 yr note yield is quietly rising to the highest level in 4 1/2 weeks and is just a few bps from the level of Aug 27th, the day Bernanke spoke in Jackson Hole and broached the possibility of more action. Because of the inflation concerns derived from Fed policy, the 30 yr yield is rising to 3.94%, 25 bps above the Aug 27th closing level. Rates at shorter maturities are below their Aug 27th close but the action across the longer end highlights the battle the Fed has on its hands if it wants to take on the bond market. An aside, ICSC cut its Oct retail sales comp estimate to a gain of 2-2.5% from 2.5% ex WMT.

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