Q:Do you expect outgoing Fed chief Ben Bernanke to continue tapering QE in January at the same pace as in December or will the size of the reduction change?
A:The FED remain stuck in the holding pattern of waiting for the data to support further tapering. However with the recent dismal NFP jobs report the data is certainly not supporting any further taper. The NFP was talked ‘up’ and most analysts, including myself, revised their calls up, only to see a NFP of 74k well below the 200k forecast by many. The trading however after this event did not have the characteristics of a normal ‘shock’ figure, the dip in the indices were quickly retraced and from there we have gone on to see record highs in the DAX and other main indices gain heavily.
What does this all mean for Ben and the FED? Well I seen no further taper in Jan, even though I suspect there will be a hefty revision the NFP and the fact the indices remain bullish. I believe the ‘tone’ and a clearer message will have to be set. For far too long we have had the wait and see approach, the slight taper did nothing to address the wider issue and also had very little impact on the markets. With QE the FED’s decision has to be that the US is ready or not. $10bn to $25bn cuts are nothing in the global sense, if the US want to say the economy is back on track then we need to see $40bn + cut from the current stimulus, otherwise nothing will be truly sorted and the markets will continue to function under controlled conditions.