4 Feb 2014
QE Taper, bad US data starting to prove toxic
FXStreet (Barcelona) - The market reaction to Monday's big miss in US Manufacturing PMI data suggests there is an important change of dynamics as how market interprets information, given the sharp fall in US stocks.
Over the course of the QE era, 'bad US data' used to be associated with rises in the stock market on the assumption that more cheap money courtesy of the Fed would flood the world. However, financial markets seem to be in an important inflection point, and the fact that the Fed appears to have partially succeeded at communicating low prospects of additional QE, is causing real money to run to the exits, leaving stocks and entering the relatively safer US Treasury arena, with 10-yr yields below 2.6%.
Once the market's dynamics are changed, one has to adapt to the new behaviour regardless of the motives behind. What we are starting to see in the SP500, leaving the technicals aside (which looks pretty ugly), is how information is being perceived by market participants, and in connection with this new phenomenon, there are tentative signs communicating an important re-adjustment in market psychology, which may potentially see further flight to the safety of US bonds and away from stocks. It looks as though the tapering might start to prove toxic as the hot money returns to safer assets and fundamentals re-align.
Over the course of the QE era, 'bad US data' used to be associated with rises in the stock market on the assumption that more cheap money courtesy of the Fed would flood the world. However, financial markets seem to be in an important inflection point, and the fact that the Fed appears to have partially succeeded at communicating low prospects of additional QE, is causing real money to run to the exits, leaving stocks and entering the relatively safer US Treasury arena, with 10-yr yields below 2.6%.
Once the market's dynamics are changed, one has to adapt to the new behaviour regardless of the motives behind. What we are starting to see in the SP500, leaving the technicals aside (which looks pretty ugly), is how information is being perceived by market participants, and in connection with this new phenomenon, there are tentative signs communicating an important re-adjustment in market psychology, which may potentially see further flight to the safety of US bonds and away from stocks. It looks as though the tapering might start to prove toxic as the hot money returns to safer assets and fundamentals re-align.