19 December 2013

US QE Tapering Program Started - Dec 2013

Today (18 November 3PM US time), US FED announced its plan to start QE tapering by reducing the monthly bond purchases to US$75B from US$85B earlier. It somehow was digested in the market, while US stock market pushed up to above 16,000 point again.

To me, I am not surprised that the QE tapering has been started, the question now is whether it will affect the market sentiment. FED hint that the future interest rate will remain in near zero range as long as unemployment rate stays above 6.5% and they would manage it so that inflation rate could stay in merely 2% range.

Given the speech by Bernanke, a retiring FED chairman, I believe that all center banks around the world would adjust their monetary policy by preparing to adjust the interest rate upward gradually, in long run. This, to me will definitely cool down the sentiment so that speculators would reduce their long position and we could see the impact of bubble caused by QE would be reduced to the minimum level.

As Singapore is a small open economy, I believe it would definitely re-adjust its monetary policy later. So, the inflated asset value would be reduced gradually, if not significantly. The hot money would definitely be flowing back to more traditional tools such as money market fund / T Bill / etc. Nonetheless, we should always look for good purchase opportunity during high interest rate environment. There might be some bargain buy there.

You may refer to the below link for further explanation.

Source: http://www.bloomberg.com/quicktake/federal-reserve-quantitative-easing-tape/

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