S&P 500 Index, Fed, Quantitative Easing, and Tapering Bond Purchases – Key Points:
- S&P 500 index at the risk of short term rebound after forming the bearish Hanging Man candle close to the key resistance
- The suggestion by a few members of the Fed that the central bank might look to taper its Quantitative Easing program might weigh on the US benchmark indices
- The equity markets credit high during the APAC trade as buyers warmed to the idea of extra fiscal stimulus out of the United States.
The equity markets have cautiously crept higher throughout the Asia pacific trade as buyers warmed up to the possibility of extra US fiscal support with the incoming Biden administration. Also, the Nikkei 225 index rose 0.1% higher and the Hang Seng rose 0.92%.
China CSI 300 index rose 2.6% on the back of a significant drop in the domestic covid-19 infections. In the forex markets, the risk-sensitive CAD, NOK, NZD, and AUD outperformed largely, whereas the haven linked CHF, JPY and USD lost some ground against their major peers.
Silver and gold prices pulled back higher as the yields on the US 10-Year Treasuries dropped back under 1.15%. A closer look ahead, the series of speeches from different members of the Fed headline a very light economic basket as Gold Price Forecast Stalled By Spike In US Treasury Yields.
FED TAPER TALK, SURGING YIELDS UNDERMINE S&P 500 INDEX
The most recent comments from several members of the Fed hinted at the possibility tapering of the central banks QE program, in line with the rising real yields, might weigh heavily on the S&P 500 index in the next few days.
Dallas Federal Reserve President Robert Kaplan said that he will most likely start a conversion about the reduction of the central bond purchasing rate by end of 2021, whereas Raphael Bostic, Atlanta Federal Reserve Present also stated that he will be open to more tapering in 2021.
Nevertheless, it seems highly unlikely considering the FOMC (Federal Open Market Committee) December meeting minute indicated that the central bank would continue purchasing about $80 billion and $40 billion of the Treasury Securities and Agency mortgage-backed securities each month until notable progress is made towards the committee’s maximum employment and the best price stability objectives.
Furthermore, with December non-farm payroll data showing how the domestic economy dropped 140K jobs, and the country’s 7-day Moving Average (MA) tracking covid-19 infections rising to 254K, accommodative monetary settings are most likely needed for the next few days.
However, the sheer reference to the word taper might cause panic among regional investors and also undermine the risk appetite in the short term as the focus now turns towards the consumer price growth report to be released on Thursday. The unexpected surge in inflation might stoke bets that the Federal Reserve will cut back on the bond purchases and cause more risk aversion.