Federal Reserve policymakers are due to announce their final decision regarding the tapering of monthly bond purchases today at 19:00. Investors are expecting a $10-$15 billion dollar reduction from the current $85 billion in purchases per month. A reduction around these levels has to some degree been priced in already whilst for long-term investors, it’s irrelevant whether the taper comes in September or later since it’s definitely coming by year’s end.
Having said that, any delay in tapering could see stocks start to sell off with traders possibly fearing that the strength of the economy has not convinced policymakers. It is expected that a larger than forecast taper will also trigger a slide in shares. From a short-term technical perspective, the SPX is perched in the middle of a potential range, with the 1,635 level defining support. This is also the site of its 120-day moving average, which has proven significant this year. Meanwhile, the 1,710 level marks a 20% year-to-date gain and the early-August high.
Asian stocks rallied over-night trading near 4-year highs in the run-up to the Federal Reserve QE decision. The MSCI Asia Pacific Index’s 6.8 percent rally in 2013 through yesterday has lagged a 20 percent surge in the S&P 500 Index amid concern economic growth in China is slowing. The Asia-Pacific measure traded yesterday at 13.5 times estimated earnings, compared with a multiple of 15.4 for the S&P 500 and 14.2 times for the Stoxx Europe 600 Index.
Banks including Barclays & JP Morgan have issued a revenue warning to investors indicating to investors that trading revenue for the period probably will be down from a year earlier. With the banking sector on the whole facing a massive drop in third quarter revenue, many will be hoping that today’s Federal announcement will spark a surge in volatility.