Weekly Update for 9/15/2012

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Germany’s Top Court Gives Green Light

Germany’s top constitutional court, as expected, rejected efforts to block a permanent Eurozone rescue fund.  They dismissed motions that sought to block the European Stability Mechanism but did rule that their contribution of $240 billion could not be increased without legislative approval.  Germany was the last county to ratify the permanent rescue fund which is now schedule to be setup on Oct 8th.  The ESM will increase the overall additional aid capacity to 500 billion euros from the 148 billion euros left in the temporary fund, the European Financial Stability Facility, due to be phased out in mid-2013.

Helicopter Ben Lives Up to His Name

The Federal Reserve gave the markets even more than they were expecting on Wednesday by saying they will not only start a third round of quantitative easing but also that the purchases will be open in nature.  They will buy 40 billion in mortgage debt per month until they see improvements in the economy.  They also said that they expect to keep short term interest rates near zero until 2015.  Share markets rallied around the world with the DOW reaching levels not seen since 2007 and the Nasdaq reaching levels not seen in 12 years.  The metals, oil, and other commodities all rallied as well.  One market that did not rally was US treasuries, the thirty year had its worst week in three years selling off more than 3%.

CPI Rises More Than Expected

The US consumer price index rose .6% in August higher than expected and its biggest monthly increase in three years.  Much of the increase came from higher energy prices, with the core CPI rising just .1% for the month, but the core rate did increase 1.9% year over year which is very close to the Fed’s target inflation rate of 2%.

Market Pressure Easing on Spain But Political Pressure Ramping Up

The Eurozone finance ministers met on Friday to discuss possible financial help for Spain and Greece.  Some of the funding pressure that has been put on Spain by the bond markets has decreased since the ECB announcement of their bond buying program as Spanish 10 year yields have fell to 5.58%.  However, political pressure from the Eurozone toward Spain to apply for aid and except the conditions that come along with the bond buying program has ramped up.