26 Sep 2013
Flash: USD; data watching - TD Securities
FXstreet.com (London) - Eric Green, Global head of Rate, FX & Commodity Research at TD Securities puts data in focus regarding rate hike timings.
Key Quotes:
“What stronger data will do is shape expectations for the pace of tapering once it has commenced. Growth around 2.0% and jobs at 175k would suggest asset purchases extend into the end of 2014, stronger growth could compress that time frame, but either way odds of a mid-2014 conclusion to purchases now looks unreasonable. This effectively increases the size of QE3 by an additional $300B to $600B. The Fed has, also ramped up QE in relative terms”.
“As MBS issuance falls on lower refinancing and Treasury coupon supply is set to diminish by $120B in 2014 the current pace of buying sucks a relatively greater share of duration out of the market”.
“With Yellen the presumptive favorite, and her emphasis on a lingering growth and inflation deficit (what is being termed optimal policy targeting) a more dovish repricing of rate expectations will not reverse anytime soon. Market pricing for rate hikes pushed back into mid-2015 with year-end 2016 expectations trimmed by 45bps since the FOMC meeting has more room to run”.
“Another 30bps lower to 1.75%, the level in mid-June, is back in play”.
Key Quotes:
“What stronger data will do is shape expectations for the pace of tapering once it has commenced. Growth around 2.0% and jobs at 175k would suggest asset purchases extend into the end of 2014, stronger growth could compress that time frame, but either way odds of a mid-2014 conclusion to purchases now looks unreasonable. This effectively increases the size of QE3 by an additional $300B to $600B. The Fed has, also ramped up QE in relative terms”.
“As MBS issuance falls on lower refinancing and Treasury coupon supply is set to diminish by $120B in 2014 the current pace of buying sucks a relatively greater share of duration out of the market”.
“With Yellen the presumptive favorite, and her emphasis on a lingering growth and inflation deficit (what is being termed optimal policy targeting) a more dovish repricing of rate expectations will not reverse anytime soon. Market pricing for rate hikes pushed back into mid-2015 with year-end 2016 expectations trimmed by 45bps since the FOMC meeting has more room to run”.
“Another 30bps lower to 1.75%, the level in mid-June, is back in play”.