Feb 21. Fed minutes add to QE uncertainty, markets adopt “risk off” posture

–From FOMC minutes: “…many participants also expressed some concerns about potential costs and risks arising from further assset purchases.” And, “A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred.”
–The market pared back its assessment of how long QE might last, but it’s also interesting to note just how much uncertainty there is among FOMC participants regarding future policy and communication.
–In terms of reaction, things snapped quickly into risk-off mode.  Both SP and Russell made new highs for the move pre-minutes, but reversed with outside days and much lower closes.  The dollar strengthened (DXY blew through 200 day ma), gold plunged, crude oil has a double top formation portending lower levels, copper has fallen over 4.2% in the past three sessions (including this morning).  While some might conclude an immediate risk to the long end of the curve due to possible loss of the Fed’s sponsorship, flight to quality overwhelmed those concerns and treasuries closed slightly higher.  As we have seen previously, risk assets suffer most when questions about the Fed’s commitment arise.

Posted on February 21, 2013 at 5:18 am by alexmanzara · Permalink
In: Eurodollar Options

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