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FED QE deliberation is warning sign - Analyst

posted 4 Jan 2013, 03:30 by Mpelembe   [ updated 4 Jan 2013, 03:31 ]

The U.S.FED hints that it's bond-buying stimulus may end later this year. City IndexAnalyst, Josh Raymond, says risk appetite will drop if the taps are turned off; investors should start paying closer attention over the next six months.



"(QUESTION: QE or not QE: a shock for the markets from the Fed which hints that its bond buying stimulus may end later this year, much earlier than expected. Let's get straight to Josh Raymond, Strategist at City Index. Good morning to you, Josh. Does this, from what we heard from the Fed change your investment strategy at all?) 

Not in the short term but it's certainly one of those warning signs you need to keep an eye on certainly. I mean, liquidity from global central banks mostly obviously the Fed too, is a key element that's supporting the markets in keeping risk appetite strong and obviously if they start turning the taps off then that's going to have an impact on the market and an impact on risk appetite too. So, it's one of those things you're going to need to keep an eye on certainly in the next six months to see what the level of communication is and whether the sentiment is starting to change in the Fed although I wouldn't get too worried about, just to see what they've come out in the minutes this time around but I would start to pay more attention to it over the coming months. 

(QUESTION: I mean, having said that, 10-year yields up near 2%. The Dollar is up as well, we are clearly seeing it impacting the market.) 

Yeah, you're seeing the impact to the market now but in terms of risk appetite towards equities, I don't think you're going to see a dramatic impact. And don't forget, I mean, today we've got non-farm payrolls out as well so that's going to play a role in terms of how much money is actually at play and how aggressive people are going to be buying into the markets today. 

(QUESTION: Sure. ADP was good yesterday, what are you expecting on the payrolls and what could actually shift the market?) 

Yeah, ADP was extremely good and so that's increased a bit of positivity towards what we could get from the payrolls. I always worry about that because then artificially it makes the market expecting even better. We're looking around at 150,000 in terms of non-farm payrolls, private payrolls probably around the same level and the unemployment rate staying flat at 7.7%. If we do get a better number, then that's just certainly could give equities another lift as well. 

(QUESTION: All right. I want to finish up with the cover of The Economist. I don't know if you've seen the latest cover. We're going to put it up here. Picture of Boehner, the House Speaker with his Landhausmode, clearly a German. We've got Obama with a beret, a French beret on with a couple of baguettes there. They're making this comparison, troubling similarities between the fiscal mismanagement in DC and the mess in the euro zone. Political incompetence I think seems to be the main thing, do you buy this, this comparison?)

 I do. Absolutely. I think they've got it nailed on really. I was worried when politics gets involved in economics and fiscal policy and unfortunately, it's one of those things that we're just going to have to get used to in the year. As we saw it, obviously in 2011, when they first tried to raise the debt ceiling of course, we've seen that again now and I worry we'll see again in February when the look to raise the debt ceiling again."