- Taper tantrum beginning?
- Dollar strengthens
- Copper, oil are falling
Stocks fell and the dollar is stronger as minutes from the last Federal Reserve meeting indicated the US central bank will begin tapering of its monthly bond buying shortly. Details from the July meeting of the FOMC showed most policymakers “judged that it could be appropriate to start reducing the pace of asset purchases this year”, though there was some division over when to start and how quickly to dial back the stimulus. “Various participants commented that economic and financial conditions would likely warrant a reduction in coming months. Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year because they saw prevailing conditions in the labor market as not being close to meeting the Committee's ‘substantial further progress’ standard or because of uncertainty about the degree of progress toward the price-stability goal,” the minutes read. There have been some squeaky data points since the meeting, and the Delta variant is a concern, but it appears the Fed is close to consensus on beginning tapering this year. Meanwhile the taper talk continues: St Louis Fed boss James Bullard said the Fed “should get going on the taper” as “the economy has adapted”, adding that “I don’t see the delta variant stopping that process”.
Stocks are broadly weaker with Asia leading the declines into the European session. Further weakness in Chinese tech amid a competition clampdown by the authorities saw Alibaba hit a record low in Hong Kong, where the broad market declined 2.5 per cent. European bourses declined almost 2 per cent in early trade and US futures are pointing to a weaker open. The FTSE 100 is back to middle of the Jun-Jul range at 7,050. You have this cocktail that bad for stocks in the near term at least – Fed taper + rolling over in economic data after peak growth + worries about Delta exacting a longer-term drag on economic growth. US 10yr rates continue to bump around the 1.24 per cent area they have clung to this week.