Good morning hope you had a good weekend. Well, this is the week then, will QE be tapered in the US or not yet? We have had a big jump up from Fridays close to the 6650 level, funnily enough the level where we have all 3 Bianca channels for today as you can see below. The S&P jumped up to a high of 1710 and has since dropped back a bit, whilst the FTSE isn’t far off its high. This is all due to Summers withdrawing from the Fed chairmanship race, which means that its possible a looser future fed policy could be in play, basically a continuation of the current stance, as Yellen is likely to be the next one in the hot seat and is seen as positive for markets. In the short term I do have 6672 as a potential area for shorts, which we aren’t far off just now. I mentioned on Friday that I expected a bounce and this is probably that continuing. Looks like the Syria situation isn’t going to escalate into full on war, with a Russian/US deal hammered out for Syria to surrender their chemical weapons. This week it will be all eyes on the Fed and Syria etc will take a slightly more back seat.
Asia Overnight from Bloomberg
The dollar weakened against all its major peers while Asian stocks climbed with U.S. index and Treasury futures as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons.
Summers, a former Treasury secretary, would tighten Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week. The Fed will probably trim its monthly bond-buying program by $10 billion to $75 billion this week, a separate survey of economists showed.
“The market prefers Dr. Yellen, she would be the smoothest continuation of existing policy,” Phil Orlando, the New York-based chief equity strategist at Federated Investors Inc., which manages about $380 billion in assets, said by phone. “We know they will probably initiate the taper at the next Federal Open Market Committee and that they will start with about $10 billion. Therefore the passing of the baton is important.”
“Markets were priced for the likelihood of a Summers nomination, primarily for the notion that he might raise interest rates sooner than perhaps other candidates, including Janet Yellen,” Tony Crescenzi, a money manager and strategist at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s biggest bond fund, said in an e-mail. “This news should result in outperformance of shorter maturities” before the Fed policy meeting Sept. 17-18.
“It’s quite positive for equities,” George Boubouras, Melbourne-based chief investment officer at Equity Trustees Ltd., where he helps oversee about $28 billion, said by phone. “It puts Yellen back on the cards as the favorite. She’s more aligned to retaining accommodative policy and is seen as not being as brash as Summers might have been.”
U.S. stock and Treasury futures rose, with the Standard & Poor’s 500 contract gaining the most in almost a month, and the dollar fell after Lawrence Summers withdrew from the race to be the next Federal Reserve chairman. S&P 500 futures gained 1.1 percent as of 12:42 p.m. in Singapore, heading for the biggest advance since Aug. 22.
Summers withdrew from contention before a two-day Fed meeting starting tomorrow, at which the central bank is forecast to begin paring unprecedented bond purchases, known as quantitative easing. Summers would tighten policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll of investors, analysts and traders last week.
“Investors are saying that QE may not be as aggressively dialed back under Yellen, who is now the front-runner,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at B&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “QE is still a very important factor in the minds of investors and we can see this in the potential movement of the stock and bond markets.”
The S&P 500 rose 2 percent last week to close within 1.3 percent of its record high. Treasuries trading is closed in Japan today for a holiday. They are scheduled to trade as usual in the U.K. and the U.S., according to the New York-based Securities Industry and Financial Markets Association’s website.
The U.S. central bank will reduce its $85 billion in monthly bond-buying by $10 billion this week, according to the median forecast of economists in a Bloomberg News survey.
“Summers had been seen as a person who can add volatility to the market given his bias toward more aggressive tightening, should he take up the Fed chairmanship,” Gary Dugan, the Singapore-based chief investment officer for Asia and the Middle East at Coutts & Co., said in a telephone interview. “This brings Janet Yellen to the forefront and the consensus is she’ll build a follow-through of Bernanke’s policies.”
U.S. Secretary of State John Kerry will meet with French President Francois Hollande and his counterparts from France and the U.K. as he tries to build support for the Syria plan.
Kerry may also meet with ministers from Turkey and Saudi Arabia, both backers of the rebel forces seeking to topple Syrian President Bashar al-Assad. The discussions come as the United Nations prepares to release, as early as today, an inspection team’s report on a chemical weapons attack in Syria that the U.S. says killed more than 1,400 people.
With the pre market jump we do have a gap on the charts now which will mean that we will likely see 6599 again to close that gap. It was fairly quiet on Friday in the end with a small range however, this week may well be a different story. The consensus is for tapering to be announced and for $10bn, possibly $20bn cut each month – we shall see. I would have thought that the Fed would like to see a stronger recovery before tapering myself to make sure that it really had traction to continue under its own steam. If you have spent a trillion, might as well shove another billion on! We haven’t quiet reached the 6672 level mentioned previously as yet, though not far off and with prices above the Bianca channels as you can see below, the FTSE is likely to dip a little before climbing higher. S&P hit the 1710 area so we are still nudging resistance on a few things. If it gets very bearish, movement below 6561 could lead to 6500.