Last Wednesday, Federal Reserve Chairman Ben Bernanke told us that the Fed could begin to taper, or gradually reduce its monthly purchases of $85 billion worth of bonds.
The markets appeared to take this very seriously as reflected by all-out havoc in the global financial markets. Stocks, bonds, commodities and currencies around the world all fell.
However, everyone still has questions.
And they may get some answers this week as seven Federal Reserve Governors and Bank Presidents give speeches this week. Add to that some important economic data.
Societe Generale gives us a brief preview:
Chairman Bernanke set out a clear timeline last week; if the economy continues to improve, the Fed will begin to taper its $85bn/month QE program later this year and end the program altogether around mid-2014. Seven Fed speeches on the agenda this week will be scrutinised for more taper clues, starting with Fischer on Monday, Kocherlakota on Wednesday, Powell and Lockhart on Thursday, Lacker, Williams and Pianalto on Friday. As highlighted by Chief US Economist Aneta Markowska in FOMC on track for September tapering, the message from Chairman Bernanke has made the Fed’s forecasts the implicit benchmark against which investors should evaluate incoming data. The Fed forecasts unemployment will average around 7.4% in Q4 compared to 7.6% today. Investors will have to wait until 5 July for the next employment report. This week should overall see good news from the economy with strong May durable goods orders and firm housing data (S&P/Case Shiller home price index, new home sales and pending home sales).
MARKET ISSUES: Firm economic data will be further evidence that QE tapering is in the pipeline. The contrasting forces of a less accommodative monetary policy stance and better US economic data are not the only factors for markets. The earnings season is just around the corner and one question is how rising bond yields will impact notably financial sector earnings. An additional factor is conditions in the rest of the world. China (cf. above) credit and activity concerns took centre stage last week
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