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Fed Is Serious to Reduce The Size Of Its Balance Sheet – Nov 21

November 21, 2013

DAILY COMMENTARY

A quick glance of FED FOMC meeting minutes tells for sure that tapering is going to happen and will happen soon. It could be announced any moment. It does not matter whether December, January or March because one should not ignore that the meeting took place on Oct 29-30, which means that FED scaling down of bond purchase was a serious discussion that took place soon after US shutdown and they paid no heed to the government shutdown. Interestingly FED members avoided discussing shutdown during their meeting. I would put this meeting ending in a Hawkish note.
Furthermore, during their speeches this week, the two FED officials, Chairman Bernanke and James Bullard have clearly hinted that December reduction in bond purchases was on the table. I think the real concern for the FED is how to begin tapering that should include both size and calender, once FED has a firm start-up plan, then when to begin tapering, should not be a problem.
Many economist link minor economic data with tapering, which is my view is rubbish. It is nothing more than a filler to included in their daily posts, as they do not have enough substance to jot down their notes. There are more worrying factors for FED, as it is aware that after almost 6-years of quantitative easing it is now becoming hard to justify the cost and FED cannot continue to print money for ever and expand its balance sheet, which has almost exhausted.
Fed members are aware that question of money printing will be raised and someone has to be answerable for this ongoing mess that does not produce desired result. Yellen in her nomination speech in front of the Senate Banking Committee said that FED knows the cost, but she did not tell if the cost is justifying Fed’s friendly monetary policy stance nor it will never be easy for FED to justify injection of over couple of trillions of US Dollars, as the flow of money went into such pockets that it may it not be willing to disclose the details.
Coming back to economics, form the perspective of US economic performance, for next couple of months there is very little to worry about the health of economy, as the US economy should prosper because of holiday sales and it will be sending positive signals. Hence, as we approach next payroll data due to be released in next 15-days, the temperature will rise in support of reducing the size of balance sheet  in anticipation of better jobs number.
Meanwhile, in the Euro-zone talk of possible negative deposit rate inflicted injury to Euro. In my yesterday’s post I did warn that growth in Europe is sluggish and strong Euro does not serve the purpose, as deflationary condition remains high. Various ECB officials are vocal on the subject, as the Euro-zone has overcome the threat of turmoil, at least for the time being and they will happy to see Euro trading in a 1.20 -1.30 band.
However, market sentiment will be driven by the release of economic data’s that would continue to provide guidance for trend, as financial market is data dependent and today again we could see some more firework after the release of economic data from Europe and USA.

Twitter @asadcmka………

GMT 3:23 – GOLD @ $ 1248 = After break of key levels $ 1260 gold dipped to teat $ 1242 and now has support around $ 1238-40 levels, needs to break to enter $ 1230-35 zones or else failing to test lows would encourage for a test and break of $ 1260-65 zones and if moves higher the rally could expend up to $ 1270.
Initially, we could see a move towards $ 1252-55 zones before another downside attempt towards $ 1244, if fails to move beyond.
GMT 3:40 – EURO @ 1.3428 = Euro could stretch up to 1.3450 levels but unless breaks 1.3490 downside risk is high for test of 1.3390-00 zones. However, break of 1.3370 is required for dip to extend towards 1.3330-35.
GMT 3:46 – GBP @ 1.6086 = Cable is awkwardly placed as the currency is sandwiched between strong US Dollar and investors buying interest due to confidence in UK economy and BOE policy stance. 1.6024-30 will be tough to crack and a quick up move towards 1.6110-30 zones is possible. 1.5970 is the key level on the downside.
GMT 3:47 – JPY @ 100.38 = 100.60-80 would be touch to crack, failing to move beyond would see another move towards 100 zones.
GMT 3:4:49 – AUD @ 0.9308 = Support at 0.9270, break risks for 0.9240. Resistance is around 0.9350-60.

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