Post-Fed taper tantrum? Not this time, market strategists say
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[July 08, 2021] By
Divya Chowdhury
(Reuters) - Global markets won't have a
violent "taper-tantrum" like they did in 2013 even as though U.S.
Federal Reserve is expected to discuss tapering of asset purchases at
its annual gathering at Jackson Hole in August, three strategists at
asset management firms said.
The Fed's scaling back - or "tapering" - of its quantitative easing
programme in 2013 had triggered a market panic when bond yields rocketed
higher and stock prices dropped.
Inflation is likely to be "mostly transitory," and is expected to
moderate down to pre-crisis levels in 2022, the strategists told the
Reuters Global Markets Forum this week.
That will keep aggressive action from major central banks at bay, they
said.
U.S. investors will shrug off the tapering announcement, David Chao,
Hong Kong-based global market strategist at Invesco, which manages $1.4
trillion in assets globally.
"The Fed has done a fantastic job communicating it's policy stance and
future actions, so I don't think there will be any uncertainty," Chao
said.
John Vail, Tokyo-based chief global strategist at Nikko Asset
Management, expected a formal Fed decision in September.
"The (Fed) minutes did not seem to change anyone's mind about when
tapering will start," said Vail, whose firm manages assets worth $282.2
billion.
Developed economies will gradually normalise monetary policy as
inflationary pressures ease with dissipating base effects and supply
bottlenecks, said Marcelo Assalin, head of emerging markets (EM) debt at
William Blair, which manages $123 billion in assets.
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Federal Reserve Board
building on Constitution Avenue is pictured in Washington, U.S.,
March 19, 2019. REUTERS/Leah Millis
Assalin said there were several important differences between now and
2013, including lighter and less concentrated investor positioning in EM
debt and currencies, stronger external balances and buffers, and a
better-synced global economy with Fed policies.
"All in all, we expect a much smaller impact this time around," Assalin
said.
Graphic: Global asset performance -
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Both Vail and Chao expected U.S. equities to end 2021 marginally above
current levels, and the dollar to "drift back" to around its early-June
levels of 110 versus the Japanese yen and 1.21 versus euro.
Vail expected U.S. 10-year Treasury yield to rise above 1.5%.
Some of the largest U.S. asset managers expect bond yields to move
higher in the second half of this year, despite the recent slide in
Treasury yields, which they see as a temporary move.
In emerging nations, markets may see some volatility as investors
"grapple" with a tightening U.S. monetary policy, but Chao expected
taper-talk to be a "non-event."
"I'm still very much overweight on EM risk assets," he added.
(These interviews were conducted in the Reuters Global Markets Forum
chat room on Refinitiv Messenger. Join GMF: https://refini.tv/33uoFoQ)
(Reporting by Divya Chowdhury in Mumbai and Lisa Pauline Mattackal in
Bengaluru; Editing by Hugh Lawson)
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