Publication date: 5 April 2014 | Covering: January – March 2014
Quarterly Briefing
- QE3 taper: Fed reduces purchases from US$85bn to US$55bn/month by March; Yellen chair from February 1; taper on autopilot
- Ukraine: Maidan protests culminate; Yanukovych flees Feb 22; Crimea referendum March 16; Russia annexes Crimea March 18
- Emerging market selloff January: Argentina devalues peso; Turkish lira crisis; South African rand weakens; capital outflows from EM
- Janet Yellen succeeds Ben Bernanke as Fed Chair February 1: first woman to lead the Federal Reserve
- Mt. Gox Bitcoin exchange collapses February: US$473 million in Bitcoin missing; largest crypto exchange failure to date
- China growth slowing: manufacturing PMI below 50; property market cooling; credit concerns
- US polar vortex January–February: severe cold disrupts activity; Q1 GDP expected to be weak
- Jamaica IMF EFF second year; BOJ easing; NHT mortgage activity; diaspora engagement
QE3 Taper Begins; Yellen Takes the Helm
The Federal Reserve began 2014 executing on the taper path announced by outgoing Chair Ben Bernanke at the December 2013 FOMC meeting, reducing monthly asset purchases from US$85 billion to US$75 billion in January and further to US$65 billion in February and US$55 billion in March. Janet Yellen, who succeeded Bernanke as Chair on 1 February — the first woman to lead the Federal Reserve in its 100-year history — made clear at her first press conference in March that the taper was on a preset course and would continue in measured steps absent a “material” deterioration in the economic outlook. Yellen’s initial communications caused a brief market stir when she suggested that “considerable time” after QE ended could mean “something on the order of six months” before rate liftoff, prompting markets to briefly bring forward their expectation for the first hike. The subsequent clarification smoothed the reaction, and the broad message remained one of patience and data dependence. The Fed’s balance sheet by March stood at approximately US$4.2 trillion, reflecting the accumulated purchases of QE1, QE2, and QE3 — an expansion of roughly US$3.5 trillion since 2008.
Ukraine: Maidan to Crimea Annexation
The first quarter of 2014 produced one of the most consequential geopolitical ruptures in Europe since the end of the Cold War. The Euromaidan protests that had begun in Kyiv in November 2013 — triggered by President Yanukovych’s decision to abandon an EU association agreement in favour of a Russian deal — reached their violent climax in February. Following days of escalating clashes between protesters and security forces in which more than 100 demonstrators were killed, Yanukovych fled Ukraine on 22 February, seeking refuge in Russia. A new interim government was formed, aligned with the EU integration agenda. Russia’s response was swift and unprecedented: Russian troops secured Crimea in late February, a referendum of dubious legitimacy was held on 16 March in which 97 per cent purportedly voted for annexation, and Russia formally incorporated Crimea into its territory on 18 March. The annexation of Crimea was condemned by the United States, European Union, and United Nations as a violation of international law, and the first rounds of Western sanctions were imposed. For global financial markets, the Ukraine crisis added a geopolitical risk premium that had been largely absent since the early 2000s.
Emerging Market Volatility; Argentina and Turkey
January 2014 brought a sharp emerging market sell-off as investors reassessed the sustainability of capital flows to developing economies in a world of gradually tightening US monetary policy. Argentina devalued the peso by approximately 15 per cent over several days in late January, its most significant devaluation since the 2002 crisis. Turkey faced a severe lira crisis rooted in a combination of current account imbalance, political instability surrounding corruption allegations against the Erdogan government, and investor concern about central bank independence: the Central Bank of Turkey ultimately raised its main lending rate from 7.75 per cent to 12 per cent in a single emergency meeting on 28 January to stabilise the currency. South Africa, Brazil, and India all experienced currency weakness and capital outflow pressure through January. The episode was a reminder that the “taper tantrum” of mid-2013 had exposed structural vulnerabilities in several emerging markets that had not been resolved, and that the normalisation of US monetary policy carried global implications for countries dependent on international capital flows.
Jamaica Mortgage and Housing Market: Q1 2014
Jamaica’s mortgage market opened 2014 with improving momentum reflecting the second year of the IMF EFF programme’s fiscal discipline and the BOJ’s sustained monetary easing. Domestic interest rates had fallen from their 2012 to 2013 peaks, and NHT mortgage applications remained steady. The global emerging market turbulence of January had limited direct impact on Jamaica given its fixed-rate dollar peg and the IMF programme’s credibility anchor. The property market’s first quarter activity was supported by early spring demand and continuing diaspora interest in both residential and commercial property. The broader economic narrative of stabilisation and gradual growth recovery underpinned cautious optimism in the housing market for 2014 as a whole.
Looking Ahead to Q2 2014
The second quarter will see the QE3 taper continue toward its expected October end-date, with Fed watchers focused on any signals about the timing and pace of subsequent rate increases. Ukraine’s trajectory — and the escalation or de-escalation of Western sanctions against Russia — will be the dominant geopolitical risk for European markets. For Jamaica, the spring property season and the next IMF programme review are the principal domestic signposts, with the BOJ’s continued easing expected to provide gradual support to mortgage affordability through 2014.
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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