Savage Taper, Bond Buying In The U.S

It has become clear that debate surrounding the timing and savagery of tapering unprecedented bond buying in the U.S is more or less the sole focus of the markets. Economic data is now being scrutinised for clues that could have an effect on the tapering process. Importantly, with the tapering issue now rumbling on for many months, we are starting to see investors develop a sense of risk aversion.

The MSCI Emerging Markets Index has lost 4.6 percent this year while the S&P 500 is up 26 percent in 2013, set for the biggest annual advance since 1998, as the outlook for an end to Fed stimulus reversed a flow of funds into developing nations. This emphasizes how far gold has fallen since being viewed as an ultimate safe haven investment, with the precious metal losing over 25.5 percent of its value this year.

After a raft of encouraging data from the U.S, the likelihood of Federal Reserve tapering before 2014 has risen markedly. The number of economists who predict tapering at the December 17th-18th Fed meeting has doubled to 34 percent since the last survey on November 8.

Headline European indices are indicating a bearish open, reflecting the disappointing session Asian markets experienced overnight. Japanese stocks snapped three days of gains as the yen strengthened 0.1 percent against the euro. The Asian currency, considered a haven from declines in higher-yielding assets, also advanced 0.1 percent against the dollar after climbing 0.4 percent yesterday. This advance comes despite significant buying of the dollar after the U.S budget agreement between Senator Patty Murray and Representative Paul Ryan.

  – Max Cohen

PM Analysis
Global stocks remained in the red, declining for a second day
Global stocks remained in the red as we approach the European close, declining for a second day as investors weighed a provisional agreement between US lawmakers to limit automatic spending reductions. However, the Congressional budget accord fuelled speculation that the Federal Reserve could trim stimulus next week.

The euro rose for a seventh straight session against the dollar as investors believed that the European Central Bank will keep interest rates low for some time and as overnight lending rates crept upwards.

The UK’s banking sector remained under pressure with RBS leading the FTSE 100 fallers. Royal Bank of Scotland revealed their finance director, Nathan Bostock, has resigned after just 10 weeks to join Santander. This move is the latest in an ever growing list of problems for the 81% government owned bank.

– Lee Mumford

Original Post

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