Market Today

By Vinayak on Tuesday, September 17, 2013 with 0 comments


Fed Tapering

The FOMC meetings are about to get underway. Most economists surveyed see a reduction of $10-15B in monthly bond purchases. Bernanke and the Fed appear to have no choice but to stimulate but not to be too aggressive as this might be calamitous to the financial markets.

The Fed has been prudent by employing steady messaging over the past few months so that the markets (bond and equity) are now poised to take the tapering announcement in stride provided there are no unexpected shocks/movers or other announcements.

 

Tapering effect on Equities

Global equity markets had lost an estimated $3 trillion in the five days after Bernanke's remarks on June 19 that the bond purchases will be scaled back and halted by mid-2014.

 

Bond Yields

It seems like bond yields are going to be pushed higher as the stimulus gets scaled back. Already, housing demand has slowed as mortgages have gone up forcing job cuts for thousands at Bank of America Corp. and Wells Fargo & Co., flying in the face of what the Fed's policies were aimed at in the first place: creating jobs and increasing housing demand.

Purchases of new U.S. homes fell 13.4% in July; the most in 3 years. According to a Mortgage Bankers Association index, mortgage applications have fallen in 15 of the last 18 weeks (now hitting the lowest level since Oct '08).

 

When will the Fed complete its asset purchase program?

This seems to be million dollar question. The timeline is for completion in mid-2014 if the jobless rate falls to 7% down from August's 7.3%.

 

Bottom line: The Market Today

There were some gains yesterday and many market analysts are forecasting the market to drop in the next two days. Stocks are dropping as Treasuries gained before the FOMC.

 

JUST IN: U.S. Consumer Prices in August Rose by 0.1% Which Was Less Than Forecast

Category: Market Events , News

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