14 Nov 2013
Flash: Markets have entered an awkward phase - RBS
FXstreet.com (Barcelona) - Global markets have entered an awkward period, according to Greg Gibbs, FX Strategist at RBS.
Key Quotes
"The US economy is facing a minor fiscal crisis of sorts and the Fed has decided to delay its taper. Although the market is very unsure about what the Fed intends to do. It is possible that the market has become too optimistic on the US economic outlook and is expecting the Fed to move more quickly to taper than it will. In which case we could see the USD weaken as these expectations are squashed. Furthermore, the market’s pessimism on EM markets may be overdone and reflect a few bad apples. The wide under-performance of EM equities below US equities may have gone too far."
"If the Fed now moves to narrow its policy message and make it clearer that they are wary of the rise in US long term yields and will enhance policy guidance and cut back QE only very gradually from a later start date, we could see a period of recovery in EM and commodity currencies."
"However, from a medium term perspective it appears that the tide has turned. The Fed’s QE and guidance policy is no longer a significant negative for the USD, it appears to be working more to boost US asset prices and is working more clearly to support a recovery in the US economy."
"As such, the market can see a time when it will be withdrawn and the US may be able to develop a sustainable recovery. Furthermore, the larger faster growing EM markets are seen to be losing their dynamism. This supports the view that the USD may remain in a broader rising trend against EM and commodity currencies."
Key Quotes
"The US economy is facing a minor fiscal crisis of sorts and the Fed has decided to delay its taper. Although the market is very unsure about what the Fed intends to do. It is possible that the market has become too optimistic on the US economic outlook and is expecting the Fed to move more quickly to taper than it will. In which case we could see the USD weaken as these expectations are squashed. Furthermore, the market’s pessimism on EM markets may be overdone and reflect a few bad apples. The wide under-performance of EM equities below US equities may have gone too far."
"If the Fed now moves to narrow its policy message and make it clearer that they are wary of the rise in US long term yields and will enhance policy guidance and cut back QE only very gradually from a later start date, we could see a period of recovery in EM and commodity currencies."
"However, from a medium term perspective it appears that the tide has turned. The Fed’s QE and guidance policy is no longer a significant negative for the USD, it appears to be working more to boost US asset prices and is working more clearly to support a recovery in the US economy."
"As such, the market can see a time when it will be withdrawn and the US may be able to develop a sustainable recovery. Furthermore, the larger faster growing EM markets are seen to be losing their dynamism. This supports the view that the USD may remain in a broader rising trend against EM and commodity currencies."