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20 Jun 2013
Flash: Markets supportive of Bernankes language - BMO
FXstreet.com (London) - Stephen Gallo at BMO feels that Bernanke’s usage of the word “measured” as regards to his description of how asset purchases might be wound down in future was an interesting Greenspan-era “twist”, which gives balance sheet shrinkage an important “tightening feel” to it.
He said that although QE tapering is not by any means an actual tightening of policy, from the dual perspectives of market psychology perspective and asset prices, it will almost certainly feel as if it is. For now, however, he would tend to argue that this may be precisely what the Fed wants in order to gradually restore a sense of normality to things, and force market participants to allow fundamentals to drive overall behaviour and broader market conditions going forward. Unsurprisingly then, he say’s, overall conditions this morning in London were supportive of a new layer of QE tapering-adjustment (i.e in terms of USD strength, weakness in equities, strength in bond yields and weakness in high-yield FX), but things generally had a “controlled” feel to them, which is rather important in their view.
He said that although QE tapering is not by any means an actual tightening of policy, from the dual perspectives of market psychology perspective and asset prices, it will almost certainly feel as if it is. For now, however, he would tend to argue that this may be precisely what the Fed wants in order to gradually restore a sense of normality to things, and force market participants to allow fundamentals to drive overall behaviour and broader market conditions going forward. Unsurprisingly then, he say’s, overall conditions this morning in London were supportive of a new layer of QE tapering-adjustment (i.e in terms of USD strength, weakness in equities, strength in bond yields and weakness in high-yield FX), but things generally had a “controlled” feel to them, which is rather important in their view.