Scoreboard: Taper debate

Wall Street was flat overnight as positive US data increased expectations of an impending taper, although bond and gold moves may suggest otherwise.

Global equities were weaker overnight, notionally on the view that a taper is close at hand – and for people of that view, there was some supporting data in US job openings. These rose 1 per cent in October to a five-year high. Similarly, US wholesalers told us that sales growth was strong in October – up 1 per cent, and more – they are lifting inventories in response and on the expectation of future strong sales growth – inventories up 1.4 per cent.

So it makes sense that people think a taper is coming soon – because it’s already long overdue – and this is what the headlines suggest drove things. Yet that doesn’t quite gel with the 10-year bond rally, which was solid as far as these things go: the 10-year yield is down 5 bps to 2.8 per cent at the time of writing. Nor does it explain why gold shot up $26 to $1260.

If anything, those moves point to less chance of a taper. It was actually quite bizarre because as equities sold off, there was general merriment in the commodities space – WTI crude rose 1.1 per cent to $98.4, while Brent was 0.5 per cent higher, at $109.5. Copper was slightly higher with a 0.2 per cent rise, while back in the precious space silver spiked 3 per cent!

Yet those moves, as big as they were, helped equities only marginally. I think basic materials were up smalls and that’s about it. Energy stocks were still weaker at the time of writing, despite some decent crude gains – although the key deadweights were utilities, healthcare and telecommunications. Overall and with just over an hour left to trade, the S&P500 is off 0.3 per cent, at 1,803, as is the Dow, at 15,983. The Nasdaq for its part is 0.2 per cent weaker at 4,061 – all a lot better than what we saw in Europe, where the Dax was off 0.9 per cent, the CaC fell 1 per cent and the FTSE weakened 0.6 per cent.

Not really sure what else to tell you. Aussie dollars were stronger and by quite a bit – 70 pips to 0.9154 and that move seems particular to the Australian dollar –  and the Japanese yen I guess, which fell to 102.7 from 103.3. Euro was only up 10pips or so to 1.3764.

Now in terms of other interesting tid bits, the Volcker rule, which notionally places limitations on bank’s trading on their own account, has finally been passed by US regulators, who signed off on it today. Apparently many details still have to be worked out and the Fed doesn’t require compliance for another eighteen months to two years – assuming there are no more extensions. Five years after the Dodd-Frank Bill. Amazing. Don’t worry though, money still talks and lobbying remains effective – as some big exemptions have been granted which water the rule down. So for instance market-making desks – as long as traders aren’t rewarded for proprietary trading! How vague is that? In any case, the rule will only be any good if it is enforced. So it’s interesting to note, in my view, that there was in fact no problem with existing regulations – for the system as a whole, pre-GFC. They just weren’t enforced. Some say that may have something to do with the free flow of regulators into Wall Street investment banks – for doing a ‘good job supervising’ no doubt. In any case, many still suggest that the rule is far too complicated to be enforced.

For our market today, the SPI is 0.6 per cent lower. Data wise we get consumer confidence figures at 1030 AEDT. The confidence estimate is for December and comes after a 2 per cent gain in November. Other than that we see German inflation figures, the US monthly budget – and that’s it.


Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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