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Markets falter with hype as delta delays decision

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The produce on the 10-year government bond ended the day marginally lower at 1,233 percent and S.&The benchmark P 500 of the US leading stocks corrected the decline to close flat. The Nasdaq, its tech-heavy counterpart, rose 0.7 percent.

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The dollar initially rose but reversed its gains by the end of the day as the dollar index, which measures the US currency against a basket of currencies, fell 0.2 percent. The Australian dollar initially fell following the Fed’s announcement prior rallying to end the day 0.2% higher at US73.70¢.

Powell likely spent most of this meeting arguing with other Fed officials over the timing and pace of slowing Fed asset purchases.

– Charlie Ripley, Allianz Investment Management

“With each passing meeting, the message from the Fed seems to be slowly tilting more to the hawkish side,” said Charlie Ripley, chief investment analyst at Allianz Investment Management.

“Today’s result and recognition of progress suggests that the Fed is close to deciding whether to decrease the extraordinary amount of bond purchases.”

By backing off announcing a plan to curb quantitative easing, the Fed has refocused investors’ attention on its next meeting where it may announce a massive slowdown in the stimulus being pumped in during the pandemic.

The Fed hopes that mild messaging will aid financial markets avoid the considerate of quick response that characterized the so-called “taper tantrum” in 2013 when government debt sold off sharply following the Fed announced a cut in bond purchases following the crisis.

The Fed’s upcoming meeting in September will provide the central bank with an opportunity to devise a plan to scale back its record levels of stimulus, which includes monthly purchases of up to $80 billion in Treasuries and $40 billion in the agency’s mortgage-backed securities.

“It is conceivable that we are nearing a formal tapering announcement, but we still think September is the most likely date for that to happen,” said Lawrence Gillum, fixed income analyst at LPL Financial.

The telegraph measured for the eventual transition to tapering reflects the divergent views among members of the Federal Open Market Committee, the group responsible for setting interest rates and monetary stimulus.

“Chairman Powell likely spent most of this meeting arguing with other Fed officials about the timing and pace of slowing Fed asset purchases,” Ripley said.

“Some members persevere to express concern about the slow pace of recovery in the labor market, while others are more concerned about higher prices and the economic impact as a whole,” he said.

The renewed spread of COVID-19, spurred by the rapid transfer of the delta variable, was one factor in reining in the tapering. Last week, the Centers for Disease Control and Prevention, a US agency, found that the delta strain is responsible for more than four out of five unused COVID-19 infections across the United States.

“There is still some uncertainty surrounding the trajectory of inflation and growth as supply chains remain tight and risks looming around the delta variable are weighing on investor confidence,” Ripley said.

Referensi: www.afr.com

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