The Fed surprised markets by delaying tapering on the basis that they would want to wait for more evidence of economic recovery. Markets responded with risk-on: USD and yields fell, equities and bonds rose. Taper sensitive assets like EM assets and high dividend stocks soared.
Their assessment of recent economic performance has improved but there is concern that the recent rise in interest rates may snuff out growth. Should the economy continue to grow over the next few weeks, the odds of tapering will rise as the Fed will believe that the economy can live with higher rates (consistent with what the market has been signaling). Bernanke did not rule out convening a press conference for the October meeting, thus making an announcement next month a likely event. While the Fed is keeping their options open, it is clear that they are more cautious on cutting back tapering, preferring to err on the side of caution.
Tapering is likely (although actual timing is uncertain) but the magnitude is likely to be small (consistent with the Fed's cautious approach). Taper sensitive assets are likely to continue their bounce in reaction to the Fed delaying their decision but our longer term outlook remains unchanged. DM assets continue to outperform while EM assets face a natural headwind when rates rise.
IMPORTANT NOTES: This report is provided for the information of the intended recipient only and should not be reproduced, published, circulated or disclosed to any other person without the prior written consent of GYC. The information and opinions expressed herein reflect a judgment of the markets at its original date of publication and are subject to change without notice. GYC does not warrant the accuracy, adequacy or completeness of the information herein and expressly disclaims liability for any errors or omissions. The information is given on a general basis without obligation and on the understanding that any person acting upon or in reliance on it, does so entirely at his or her own risk. Any projections or other forward-looking statements regarding future events or performance of countries, markets or companies are not necessarily indicative of, and may differ from, actual events or results. Neither is past performance necessarily indicative of future performance. You should make your own assessment of the relevance, accuracy and adequacy of the information contained in the information provided and make such independent investigations as you may consider necessary or appropriate. Accordingly, neither GYC nor any of our directors, employees or Representatives can accept any liability whatsoever for any loss, whether direct or indirect, or consequential loss, that may arise from the use of information or opinions provided.
GYC FINANCIAL ADVISORY PTE LTD 1 Raffles Place #15-01 One Raffles Place, Singapore 048616
Tel: (65) 6349-1441 | Fax: (65) 6349-1440 | Email: email@example.com | Co Reg: 199806191-K