Publication date: 5 October 2013 | Covering: July – September 2013
Quarterly Briefing
- FRESH — Fed September 18: Surprise no-taper; retains full US$85bn/month QE3; 10-year Treasury falls from 3.0% to 2.65% on announcement (17 days ago)
- Syria: chemical weapons attack Ghouta August 21; Obama requests Congressional authorisation; UK Parliament votes No; strike called off
- Egypt: General Sisi ousts President Morsi July 3; military-backed government; Rabaa massacre August 14; international condemnation
- Germany elections September 22: Merkel wins third term with near-majority; CDU strongest result since reunification
- ‘Taper tantrum’ aftermath: 10-year Treasury peaked at 3.0% in September before No-taper; EM currencies partially recover
- US Q2 GDP revised to 2.5% annualised: solid growth; unemployment 7.3% by September; recovery credentials intact
- Larry Summers withdraws from Fed Chair race September 15; Yellen favourite
- Jamaica IMF EFF programme month 4–6; BOJ policy rate declining; NHT activity
Fed’s No-Taper Surprise Jolts Markets
The Federal Open Market Committee delivered one of its most surprising decisions in recent years on 18 September when it declined to begin reducing its monthly asset purchases despite widespread market expectation that a modest step-down would be announced. The so-called ‘no-taper’ decision — seventeen days before this edition publishes — sent markets sharply in the opposite direction from the taper tantrum of May and June: 10-year Treasury yields fell from nearly 3.0 per cent to 2.65 per cent in hours, equities rallied, and emerging market currencies surged. The Fed justified the decision by pointing to uncertainty about fiscal policy — the US government shutdown and debt ceiling confrontation looming in October — and expressed concern that the sharp rise in longer-term interest rates during the summer had tightened financial conditions more than warranted by the progress of the recovery. The decision reset expectations for taper timing to December 2013 or early 2014 at the earliest. The episode highlighted the sensitivity of global financial markets to Fed communications and the difficulty of managing the exit from unprecedented accommodation without creating excessive volatility.
Syria Chemical Weapons; Congressional Check on Executive Power
The Syrian civil war produced its most alarming development on 21 August when chemical weapons were used in the Ghouta suburb of Damascus, killing an estimated 1,400 people in the worst use of chemical weapons since Saddam Hussein’s attacks on Kurdish populations in 1988. President Obama had previously characterised chemical weapons use as a ‘red line’, and the Administration prepared a military strike response. However, the British Parliament voted against authorising UK participation on 29 August, and President Obama then made the unusual decision to seek Congressional authorisation before acting. A diplomatic resolution emerged when Russia proposed — and Syria accepted — a framework for the destruction of Syria’s declared chemical weapons stockpile under international supervision, averting the strike. The episode raised questions about US credibility in enforcing stated red lines and about the willingness of Western democracies to intervene militarily even in the face of mass atrocity. For commodity markets, the Syria crisis briefly raised oil prices above US$110/barrel on supply disruption fears before the diplomatic resolution brought prices lower.
Egypt: Military Removes Morsi; Regional Uncertainty
Egypt’s brief democratic experiment ended on 3 July when the Egyptian military, led by General Abdel Fattah el-Sisi, removed President Mohamed Morsi of the Muslim Brotherhood from power following mass protests against his government. A military-backed interim government was installed, and on 14 August security forces cleared two large pro-Morsi encampments in Cairo in the Rabaa massacre, killing several hundred and drawing international condemnation. The United States and European Union expressed concern but stopped short of formally characterising the military intervention as a coup — which would have automatically triggered aid suspensions under US law. Egypt’s political instability was a significant source of regional uncertainty, particularly given the country’s role in the Suez Canal and its peace treaty with Israel. For global energy markets, Egyptian instability added a background geopolitical risk premium to oil prices through the quarter.
Jamaica Mortgage and Housing Market: Q3 2013
Jamaica’s mortgage market navigated the third quarter of 2013 against a backdrop of continued IMF EFF programme implementation. The Bank of Jamaica, with the fiscal programme providing a credibility anchor, was cautiously beginning to reduce its policy rate from the elevated levels necessitated by the pre-programme macroeconomic instability. NHT mortgage lending continued at steady volumes, with the institution’s tiered rate structure providing the primary affordable finance pathway. The summer diaspora season — when many overseas Jamaicans visit the island and make property purchasing decisions — generated solid enquiry levels. The global taper tantrum of May and June had caused some widening in Jamaica’s external borrowing spreads, but the IMF programme’s credibility limited the contagion. By September, as the no-taper decision reversed much of the rate movement, Jamaica’s external financing conditions had largely normalised.
Looking Ahead to Q4 2013
The fourth quarter is dominated by the approaching US fiscal cliff — the potential government shutdown and debt ceiling crisis in October — and the question of whether the Fed will use its December meeting to announce the long-deferred taper. For Jamaica, the year-end brings the IMF programme’s second review and the BOJ’s assessment of the easing trajectory for 2014. The mortgage market’s gradual recovery is expected to continue as domestic interest rates decline further and consumer confidence rebuilds on the back of macroeconomic stabilisation.
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.
Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com
Visit our YouTube Community ↗