Alaska Volcano Observatory/Brandon WilsonMarkets are rising today after the big declines yesterday and Wednesday.
The big event this week was, of course, the FOMC announcement, wherein Ben Bernanke confirmed the Fed’s intention to “taper” the pace of bond purchases, provided the economy remains on its current trajectory.
So what does the landscape look like now?
Citi FX analyst Steven Englander explains the 6 big themes that are dominating global markets:
1) The degree of Fed optimism on the US economy, its clarity on the proposed path of winding down QE and the apparent giving up of the objective of restoring employment-population ratios that reflect the pre-2008 trend. From a markets perspective this came across as a much more hawkish Fed. In addition to this major theme, we have a continuation of themes that were earlier in play…
2) EM underperformance, especially among commodity producers. The weak China data overnight and concern about liquidity add to the headwinds EM and commodity currencies face.
3) Low, but rising yields and risk premium. There is a crucial difference between yield increases in the US where the economy is improving, and elsewhere where readings are worsening or, at best, as weak as expected.
4) Long USD positioning seems to have dropped off the map as a factor, possibly because positions had been greatly wound down going into FOMC.
5) Euro and UK stabilisation – but these are also the regions where the central banks may be most aggressive in trying to counter the headwinds form tighter US liquidity.
6) Abenomics losing its unspoken fourth arrow – extremely easy liquidity outside as well inside Japan. The question now is what measures the Japanese authorities can take to get Japanese stimulus back on track.
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