Fed chairman, Ben Bernanke, stated in his speech to the Economic Club in New York that the fiscal cliff could send U.S. economy back into recession…
“The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery”.
On the other hand, he suggested a very positive scenario in case the fiscal cliff is solved while simultaneously dealing with long term fiscal problems in the U.S…
“Cooperation and creativity to deliver fiscal clarity, in particular, a plan for resolving the nation’s longer-term budgetary issues without harming the recovery, could help make the new year a very good one for the American economy“.
Contrary to the impression received in the Fed minutes, Bernanke did not provide any clues regarding the expansion of QE3 in the next Fed meeting (upon completion of the “Operation Twist” program) as he noted that “it is still too early to assess the full effects of our most recent policy actions”.
Economic data published last week were mostly positive.
Markit PMI Index and the “new orders” component increased in November to their highest level in the last five months (preliminary estimate).
A slight drop was recorded in the final estimate of University of Michigan’s Consumer Confidence Index for November, although the index remained almost unchanged at its highest level since August 2007.
Finally, we positively note U.S. real estate data which continues to point a recovery in the sector.
The variety of fiscal and monetary incentives implemented in recent months continues to reflect an improvement in China’s macro data: HSBC PMI increased in November to its highest level in the last 13 months (50.4 vs. 49.5 in October, preliminary estimate).
The Chinese Yuan continued to appreciate against U.S. Dollar lately.
This is mainly due to recent improvement in China’s economic data, which made Chinese market more attractive to foreign investors, and in light of declining prospects for further rate reductions in the near future.