Stock markets in Japan and Europe followed Wall Street's
incredible reaction to the Fed's measured Taper announcemen
Wednesday afternoont. The bond market's reaction was lot more
subdued and appears reflective of a wait-and-see mode. Pre-open
sentiment today is a bit soft, but nothing unusual there given
the strong gains in the previous session.
The Taper decision accompanied assurances that the FOMC planned
to keep short-term interest rates at current levels for an
extended period. The emphasis on 'forward guidance' was expected
and appears to have done the job, for now at least, of
articulating that 'Taper' and 'Tighten' were two distinct
The Taper plan unveiled Wednesday afternoon provides a
measured roadmap for an end to the QE program by the end of 2014,
with the Fed keeping a close eye on the economy. If the economy
continues to improve, the FOMC will keep cutting back on bond
purchases at each meeting. And if there are questions about the
economy, they may skip a 'meeting or two' in making any cutbacks.
But the overall path is clear. The Fed doesn't envision touching
the Fed Funds rate through 2015, 'well past' the unemployment
rate falling below their prior target of 6.5%.
A lot will depend on how the bond market behaves in the coming
days. Treasury yields didn't show the type of reaction to the
Taper announcement as the equity markets did and appear on track
to keep moving towards the 3% level on the 10-year maturity. As
the dust begins to settle on the Fed outlook, the stock market
will likely take its cues from the bond market. And the bond
market's reaction will be a function of confidence in the Fed's
'forward guidance' and assurances about the future. Stocks will
be unable to sustain the positive post-Taper announcement mood if
long-term treasury yields don't stay adequately anchored.
In corporate news,
) is planning a secondary stock offering and
) is contemplating separating its Red Lobster chain through a
spin-off or outright sale. Facebook's secondary offering
announcement of 70 million Class A shares, a big part of which
belongs to Mark Zuckerberg, will likely keep the stock under
pressure in today's session. The company had all along envisaged
doing a secondary offering, but the plan was apparently delayed
by the stock's weakness following the botched IPO. But with the
stock almost doubling this year and on track to join the S&P
500 index, they seem confident of pulling off the stock sale.
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