Minneapolis Fed leader Neel Kashkari, who has long been regarded as one of the central bank's strongest supporters of keeping monetary policy on the easy side, is tiptoeing towards supporting a pull back in Fed asset buying.
"I think if we see a few more jobs reports like the one we just got, then I would feel comfortable saying, yeah, we are, maybe haven't completely filled the hole that we've been in, but we've made a lot of progress," Kashkari said in a Bloomberg podcast transcript published Monday. If that job market progress happens, "then will be the time to start tapering our asset purchases," he said.
Deutsche Bank expects tapering to be announced by the Fed in its November meeting, since September employment data won't be available at the September 22 meeting.
Deutsche Bank said it would be "a reasonable compromise between the hawks and doves" to reduce purchases of Treasurys and mortgage-backed securities by $10 billion at each meeting, which means MBS buying would end by March 2022 and Treasury purchases would be wound down by September. The bank expects Fed members to keep the possibility of changing the pace based on incoming data.
HSBC said that while Treasuries are pricing in a taper of bond purchases by the Fed, the picture isn't so clear for riskier assets including credit, emerging markets and equities.
EM, credit and equity investors have been conditioned by memories of what happened in 2013--when a rapid surge in yields after the Fed unexpectedly tightened policy had knock-on effects--and they await news on tapering from the Jackson Hole's August 26-28 meeting "with bated breath," said global head of fixed income research Steven Major.
Investors were encouraged to take on more risk by switching into credit, investment grade and high yield, and other riskier assets when 'risk-free' government yields were lowered, he added.
Commodities:
Crude oil futures extended losses in Europe with the threat to demand from the Delta variant combined with seasonally lower demand ahead and increasing production from OPEC+ generally making life harder for prices, said Helge Andre Martinse of DNB Markets.
With broader markets also lower and few oil-specific headlines to move prices, traders may look to the American Petroleum Institute's weekly inventory data for their next moves.
Base metals were mixed as the Delta variant threatens commodities' demand and sparks slowdowns in their supply chain. An outbreak of the virus in China is raising concerns about the nation's economic recovery and with it threatening to undermine demand for base metals. In response, China has implemented new restrictions which have snarled crucial ports that ship base metals providing some support to prices.
"Congestion in two of China's top container ports--Shanghai and Ningbo--is worsening after the container terminal in Ningbo was shut down on account of a Covid case being detected there last week," said Ed Meir, at ED&F Man.
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Investors Will Get Bored of GameStop
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Glynn's Take: RBA Now Has Room to Suspend Taper
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(MORE TO FOLLOW) Dow Jones Newswires
08-17-21 0555ET
