Good morning. Here's what you need to know.Asian markets went absolutely nuts, with Japan's Nikkei up 1.80%; Australia's S&P/ASX up 1.10%; and Hong Kong's Hang Seng up 1.67%. European markets were also all up big, and U.S. futures were pointing higher. Stocks and bonds were juiced by yesterday's monster announcement from the Federal Reserve that it will not taper its asset purchasing program known as quantitative easing. Most analysts had expected the Fed to reduce its monthly purchases of Treasury bills and mortgage bonds by around $10 billion. One reason the Fed may have been wary to take its foot off the accommodative gas pedal? Weak bank lending. As Reuters' Peter Rudegeair reports, "Since the bottom of the recession just over four years ago, commercial bank loans and leases have grown 4.0 percent, one of the weakest post-recession recoveries in terms of borrowing since the 1960s... For comparison, over the same period after the July 1990-March 1991 recession, loans and leases grew over four times faster."
Economists now seem to be converging on December as the new taper announcement. JP Morgan's Michael Feroli sums up what the Fed will look for before making that call: "First, a desire to see more data (presumably labor market data) before feeling comfortable with the outlook, second, a desire to assess the degree to which tighter financial conditions -- particularly mortgage rates -- are affecting the real economy, and third, a desire to gain some clarity on 'upcoming fiscal debates.'" By the next meeting, the Fed will only have more visibility on the last item, Feroli writes, so he believes a December taper is more likely than October. Today at 10:00 A.M. we'll get U.S. existing home sales for August. Economists are expecting a drop of 2.6%, compared to a 6.5% gain the month prior. This indicator will hopefully offer us information if rising mortgage rates are impeding the housing recovery. U.K. retail sales fell 0.9% in August, well worse than the 0.4% gain analysts expected. The British pound instantly dropped as a result. Small signs of life emerged in Greece when for the first time in four years, the unemployment rate dropped. The country's jobless rate fell slightly to 27.1% in the second quarter from 27.4% in the quarter previous. Japan is seeing signs of easing deflation, with land prices falling nationwide at 1.9%, the slowest pace in five years. As Reuters' Junko Fujita reports, "The gradual narrowing of land-price declines is good news for Prime Minister Shinzo Abe, whose top priority is ending Japan's long battle with deflation and spurring sustained growth with an expansionary policy mix of monetary, fiscal and structural reform measures." As promised, the new conservative government in Australia has begun to uproot its predecessor's initiatives, abolishing an independent climate change commission. Prime Minister Toby Abbott, whose government plans to repeal the Labor Party's tax on corporate pollution, said the country did not need an independent watchdog and that the role would be assumed by the Department of the Environment. JPMorgan Chase is preparing to pay about $900 million to settle last year's 'London Whale' trading debacle that saw $6 billion in trading losses, Bloomberg's Dawn Kopecki reports. This legal battle is just one of many currently faced by the bank.
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