Publication date: 5 July 2011 | Covering: April – June 2011
Quarterly Briefing
- QE2 ends: Fed completes US$600bn Treasury purchase programme June 30 as scheduled; no QE3 announced; bond market digesting end of support
- ECB raises rates: April 7 hikes to 1.25%; July 7 hikes to 1.50%; Trichet premature tightening as eurozone crisis deepens
- Bin Laden killed: US Navy SEALs raid Abbottabad, Pakistan May 2; Al-Qaeda leader eliminated; end of decade-long manhunt
- Greece second bailout: €109bn package agreed July 21 (FRESH, 14 days ago); private sector ‘voluntary’ involvement for first time
- Arab Spring: Syria crackdown; Libya civil war continues; Bahrain protests suppressed with Saudi help
- Japan reconstruction: Q1 earthquake/tsunami aftermath; supply chain disruptions global; nuclear crisis ongoing
- US debt ceiling negotiations intensify: bipartisan impasse; August 2 deadline approaching
- Jamaica: IMF Stand-By ongoing; fiscal consolidation; BOJ monetary conditions
QE2 Ends; ECB Hikes Into the Crisis
The Federal Reserve’s second round of quantitative easing — the US$600 billion Treasury purchase programme announced in November 2010 and running through June 2011 — concluded as scheduled on 30 June without the announcement of a QE3. Chair Bernanke had signalled at the June press conference that the Fed’s large balance sheet would continue to provide accommodation even without active purchases, through the reinvestment of maturing securities, and that further accommodation remained an option if the outlook deteriorated. The end of QE2 had been anticipated by markets and was relatively orderly, though some analysts warned that the removal of such a large buyer from the Treasury market could put upward pressure on yields. In contrast to the Fed’s accommodation, the European Central Bank made the decision — in retrospect widely regarded as a mistake — to begin raising interest rates. ECB President Trichet raised the main rate to 1.25 per cent in April and to 1.50 per cent in July, citing above-target eurozone inflation even as the sovereign debt crisis in Greece, Ireland, and Portugal was deepening and Spain and Italy were showing signs of stress. The rate increases would be reversed later in 2011 under new ECB President Draghi as the eurozone recession deepened.
Bin Laden Killed; Greece Second Bailout
The decade-long hunt for Osama bin Laden, the architect of the September 11 2001 attacks, ended on 2 May when US Navy SEALs conducted a raid on a compound in Abbottabad, Pakistan and killed the Al-Qaeda leader. The operation — conducted without Pakistan’s prior knowledge, straining US-Pakistan relations — was announced by President Obama in a late-night address from the White House. Bin Laden’s death marked a symbolic closure to the post-9/11 era even as the broader war on terror and its associated conflicts in Afghanistan and Iraq continued. In the eurozone, Greece’s inability to access private markets at sustainable rates led to a second bailout package of €109 billion agreed at a European summit on 21 July — fourteen days before this edition publishes. The package included, for the first time, a ‘voluntary’ private sector contribution, under which holders of Greek bonds would accept maturity extensions and some degree of haircut — the beginning of the PSI process that would result in a formal restructuring in early 2012. The second Greek bailout acknowledged that the first had been insufficient but struggled to convince markets that the new framework was either adequate or sustainable.
Jamaica Mortgage and Housing Market: Q2 2011
Jamaica’s spring property season in 2011 reflected the continuing constraint of elevated domestic interest rates and sluggish economic growth. The IMF Stand-By Arrangement was providing stability, but the high debt service burden — consuming a large share of government revenue — limited the pace of fiscal consolidation and kept domestic borrowing costs elevated. The NHT’s tiered mortgage rate structure continued to provide the most accessible pathway to home ownership for qualifying contributors, with its rates substantially below commercial market levels. The Japan earthquake and its global supply chain implications, while limited in direct Jamaica impact, were a reminder of the global interconnectedness of economic shocks. Remittance flows from the diaspora remained relatively stable through Q2, supported by the continuing US labour market recovery.
Looking Ahead to Q3 2011
The US debt ceiling crisis approaching the August 2 deadline is the immediate political risk for global markets. The eurozone’s second Greek bailout, the adequacy of the European rescue framework, and Italy’s ability to maintain market access will be the European focal points. For Jamaica, the trajectory of the IMF programme and the BOJ’s monetary policy stance will determine domestic mortgage market conditions through the second half of 2011. The global environment of low US rates but rising European rates is a mixed signal for Caribbean external financing conditions.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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