2012-01-30: The Weekly Take
January 30th 2012A look at finance as seen through the lens of the performance of financial markets and government financial policy
It has been announced that Canada will lobby to be exempt from a new US tax law that requires financial institutions, such as banks, to report US citizens, including accidental citizens, to the Internal Revenue Service.
The requirement for US Citizens to self-report would remain unaffected by these new proposals.
In Europe talks were held in Paris last week to examine similar proposals for the European financial industry. Of concern is the additional cost banks and other institutions would face in complying with the original requirements of FACTA.
Last week the Federal Open Market Committee (FOMC) met on Wednesday and the US central bank released its outlook for the economy.
The market initially reacted well, the OEX rising above 600. As the week wore on the GDP figures for the US came in at slightly less than expected, this and a profit taking sentiment took the market to a close of 595 on Friday.
Outlook for this week, the profit taking sentiment from the previous week’s highs is likely to continue, as fatigue sets in for indicating short term relative weakness. Concern is now focused on Greece where private bondholders have agreed to take a haircut and eyes are focused on the reaction of the ECB.
If the ECB moves to increase the size of its balance sheet, the Fed will likely follow this regime by introducing QE-III or something of this nature. Investors will need to be very aware of the exchange risk on any US held investments. A move to Canadian cash or bonds is indicated.
