Posts Tagged ‘Federal Reserve System’

Finally the tapering has commenced and the market rallied!

Why first of all it is just USD 10bn a month …and what is more just 5bn of Treasuries (the other is mortgage securities), than they said they will anyway keep tapering/low interest until 2015 at least and the taper was already in (weakness since Nov). Plus there is consistent talks that they are studying how to effectively push banks to give to the economy the money (the free money given to the banks now are re-deposited by the FED) and they cannot risk to upset the bond market. As usual it would take some days (and the press release) for the market to digest the info.

The QE Bull market is dead, long live the Bull Market!

Some extract from the speech – transcript – I just bold the important bits.

“We have emphasized that these numbers are thresholds not triggers, meaning that crossing the threshold would not lead automatically to an increase in the federal funds rate but would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase. With many FOMC participants now projecting that the 6.5-percent unemployment threshold will be reached by the end of 2014, the committee decided to provide additional information about how it expects its policies to evolve after the threshold is crossed.”

If incoming information supports the committee’s expectation of further progress toward its objectives, the committee is likely to reduce the pace of monthly purchases in further measured steps in future meetings. However, the process will be deliberate and data-dependent. Asset purchases are not on a preset course.

“If we are making progress in terms of inflation and continued job gains….I imagine we will continue to do probably at each meeting a measured reductionThat would take us to late in the year, certainly not by the middle of the year. If the economy slows for some reason or we are disappointed in the outcomes, we could skip a meeting or two. On the other side, if things really pick up and, of course, we could go a bit faster, but my expectation is for similar moderate steps going forward throughout most of 2014.

“The recovery clearly remains far from complete with unemployment still elevated, with both underemployment and long-term unemployment still major concerns. We have also seen ongoing declines in the labor force participation, which likely reflects not only longer-term influences such as the aging of the population but also discouragement on the part of potential workers. Inflation has been running below the committee’s longer run objective of 2 percent. The committee recognizes that inflation persistently below its objective could pose risks to economic performance and is monitoring inflation developments carefully for evidence that inflation will move back towards its objective over time.”

 

At first look there is nothing to signal…alignment with the upper crescent tunnel.

But the Bollinger movement spooked me – so I started digging.

In the next 5 days there is the end of the triangular pattern that I shown on an earlier on the NYSE.

At this point the institutional investors (that have been watching by the sidelines the market the last 10 days) will have to re align their portfolio starting a rally or bring the market down selling.

One of the “what if” day is Thursday (NYC time).

Tomorrow there is the official confirmation of the next Fed Chairman Yellen and in her speech the market will try to gauge her intention about QE (the market now thinks March 2014) or a potential move from Tea Party Senator Paul to delay her nomination (as he wants a vote on auditing the Fed balance in exchange).

Plus there is an issue on the 10 and 30 years T Bond which are pushing yields (2.73% and 3.83% respectively with long term resistance at 3.4/3.5% and 4.1% / 4.2%). A breach of these long term resistances would make all the major research houses decrease the growth projection for the US.

I still think there is a while to go before we are in real danger on the yield sise (January/March) and I am still positive as a bias