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17 Sep 2013
Fed succession still clearer, but tapering timeline still up in the air
FXstreet.com (Barcelona) - With the majority of media talking heads in unison predicting the appointment of Janet Yellen by President Obama, the next big question facing investors is when the Fed’s tapering program will commence?
Wednesday’s announcement on tapering plans will overshadow all other data this week
Most of the talking heads in the financial media were “out on a limb” today predicting that President Obama would be selecting Fed Governor Janet Yellen as his appointee to be Ben Bernanke’s replacement as the Chairman of the Federal Reserve. Even though there’s a minor chance that they are all wrong and that Obama will instead go with the more hawkish Donald Kohn, the markets seemed to have priced in Yellen’s appointment (or maybe they just priced in Summers’ withdrawal from consideration).
That being noted, the more pressing issue in investors’ minds is whether the Fed’s tapering program will commence this month or not and if so, whether the Fed will go “full speed” with the program or ease into it gradually. As noted here recently, there appears to be justification for them to go either way when they make their announcement Wednesday.
Not much of the evidence presented in that piece has changed and the Fed could really go in one of three directions with their announcement – full speed tapering, easing into tapering gradually or no tapering at all for now. Full speed tapering, which seems rather unlikely, would almost certainly cause a good portion of the risk-on trade to be taken off the table. Partial tapering – which seems to be what the markets are pricing in currently – would likely cause minimal market reaction at this point. And finally, if a full delay of the tapering program is announced Wednesday, it would certainly be a surprise to most market participants would most likely trigger a major short-covering rally.
What are the charts telling us about tapering plans?
As noted above, the markets seem to have priced in a “gradual tapering” announcement by the Fed on Wednesday. The DXY is off the recent highs, but it managed to hold up above short-term support Monday. The yield on the 10-year Treasury Note is also off the highs but it also managed to close above support at 2.846%. Stocks are as pumped up as ever and are sitting in the perfect position right below the August highs – ready to break the hearts and wallets of those positioned too heavily on the wrong side of the trade Wednesday. Gold futures are trading horribly right now – which could be ruling out the “no tapering” possibility.
Wednesday’s announcement on tapering plans will overshadow all other data this week
Most of the talking heads in the financial media were “out on a limb” today predicting that President Obama would be selecting Fed Governor Janet Yellen as his appointee to be Ben Bernanke’s replacement as the Chairman of the Federal Reserve. Even though there’s a minor chance that they are all wrong and that Obama will instead go with the more hawkish Donald Kohn, the markets seemed to have priced in Yellen’s appointment (or maybe they just priced in Summers’ withdrawal from consideration).
That being noted, the more pressing issue in investors’ minds is whether the Fed’s tapering program will commence this month or not and if so, whether the Fed will go “full speed” with the program or ease into it gradually. As noted here recently, there appears to be justification for them to go either way when they make their announcement Wednesday.
Not much of the evidence presented in that piece has changed and the Fed could really go in one of three directions with their announcement – full speed tapering, easing into tapering gradually or no tapering at all for now. Full speed tapering, which seems rather unlikely, would almost certainly cause a good portion of the risk-on trade to be taken off the table. Partial tapering – which seems to be what the markets are pricing in currently – would likely cause minimal market reaction at this point. And finally, if a full delay of the tapering program is announced Wednesday, it would certainly be a surprise to most market participants would most likely trigger a major short-covering rally.
What are the charts telling us about tapering plans?
As noted above, the markets seem to have priced in a “gradual tapering” announcement by the Fed on Wednesday. The DXY is off the recent highs, but it managed to hold up above short-term support Monday. The yield on the 10-year Treasury Note is also off the highs but it also managed to close above support at 2.846%. Stocks are as pumped up as ever and are sitting in the perfect position right below the August highs – ready to break the hearts and wallets of those positioned too heavily on the wrong side of the trade Wednesday. Gold futures are trading horribly right now – which could be ruling out the “no tapering” possibility.