The Fed’s tapering actions (last Wednesday) continue to dominate market price action with further weakness in equity markets on Friday and overnight.
The main US equity index (S&P500) closed down on Friday by 1.3 per cent, the Philly SOX was down 2.4 per cent, while the recently popular Nasdaqbanks trade was 3.4 per cent lower. In Europe the price action was similar with the key UK, German and broader European wide equity indices all 1.5 – 2.0 per cent lower on the session. Commodities also continued to struggle with base metals again weak (copper -2.3 per cent; zinc & tin both -3.0 per cent). The key question for traders and investors now is: How much of a long lasting effect will the Fed’s tapering comments have on risk assets, in general, and equity markets in particular. The movement towards/onto BUY of our key short term market timing models is one important input into that question. Powell’s language on Tuesday when testifying in front of Congress is another key one.
Key events this week, as always, are multiple. As well as Powell speaking in front of Congress on Tuesday (7pm UK time), a number of Fed Governors will also be ‘hitting the stumps’ (giving speeches) this week. By the end of the week, therefore, the market should have more colour on last week’s decision. Other central banks are also active. The Bank of England is meeting on Thursday with a decision on its latest monetary policy moves due at 12 noon. No change is expected. How many dissent from the bond buying decision will be watched with interest (last month it was Andy Haldane).
The minutes, due out at the same time, should add further colour to their decision. Elsewhere flash manufacturing and service sector PMIs (Wednesday) will give insights into the strength of the global economy in June. US durable goods orders & German IFO index (both Thursday) as well as US personal income and spending (Friday) should also all be interesting.