Tuesday, July 16, 2013

Tapering is not tightening (DBSV)

Tapering is not tightening
Treasury yields fell, the USD weakened and equities rallied last week after FED Chairman Ben Bernanke stressed that tapering does not equate to tightening and reassured that monetary policy will stay accommodative in the foreseeable future. The FOMC may opt to hold interest rates near zero even after the unemployment rate reaches 6.5% if inflation stays low. Ben Bernanke added that the full impact of the USD85bil sequester cut that takes effect between April- September may have yet to be felt.

Consensus view is shifting backward with regards to the timing for QE3 tapering and rate hike. Ben Bernanke’s latest comments and investors’ shift in tapering expectation pretty much blends with DBS Research’s view.


Our economist expects QE tapering to start only after September 2013 and end beyond mid-2014. The FED has indicated that it uses 3 parameters to adjust monetary policy.

These are GDP growth, unemployment rate and PCE inflation. We note the following:
1. Core PCE inflation, which is the Fed’s favoured gauge, is running at 1.1% YoY that is half the Fed target. Furthermore, the figure is falling, not rising.

2. GDP growth declined to 1.1% (q-o-q, saar) over the past 2 quarters, half its average in the past 2 years

3. Unemployment has fallen by a mere 0.2% in the 9 months since QE3 was launched. If this gradual rate is to continue, 7% unemployment (where the FED expects to end QE altogether) would not be reached until August 2015, which 15 months later than what the Fed currently projects. A 6.5% unemployment rate – the threshold for raising Fed funds – would not be reached until June 2017, 2.25 years later than the Feb15 date the Fed currently envisions.

Furthermore, there is the risk that tapering may have consequence on the present nascent recovery in the housing market. The FED currently purchases USD40bil of mortgage bonds each month under QE3. It’s no surprise that the mere mention of tapering has sent mortgage rate up 100bps to 3.68% and mortgage applications down 41% in 9 weeks.

FED officials acknowledged that the central bank’s mortgage backed securities purchase program has helped the economy and it’s no surprise that some members urge a reduction in Treasury rather than mortgage purchase, when tapering starts.

Same message, different reaction
There is not much news that was said last week compared to the post June FOMC meeting press conference. Back in June, Ben Bernanke said that QE tapering is not automatic but dependent on GDP and unemployment numbers. He had added that any rate hike is still ‘far into the future’ and the FED might even aim to lower the 6.5% unemployment threshold before raising short-term rates (refer to Wired Weekly dated June 24th). ; In the immediate aftermath of the June FOMC meeting, US 10-yr treasury yield was at 2.41%, still lower than the current 2.54% level. Yet back in June, equity markets reacted negatively. This time round though, it’s a positive reaction. The FED said nothing much new between June and now. What’s different though is the market reaction while treasury yield is even higher now.

We thus stick to our view that while STI has touched a low at 3065 (13.1x blended FY13/14F PE) in June, near-term upside should be capped at 3246, which is slightly below the 13.9x (average) blended FY13/14F PE level at 3266. Concerns about the impact of a China slowdown on Asia, STI’s low single digit FY13F EPS growth and uncertainty surrounding QE tapering are likely to limit the current rebound upside in the near-term.

Time, or a return in confidence that growth is returning, is needed for STI to sustain a rise above this level. Project the 13.9x (average) 12-mth forward PE positions the STI at 3430 by year-end.


Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 15/07/13

No comments:

Post a Comment

Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)
“错过时机”胜于“搞错对象”:不会全军覆没!”
做自己熟悉的事,等到发现大好机会才投钱下去

乔治·索罗斯(George Soros)

“犯错误并没有什么好羞耻的,只有知错不改才是耻辱。”

如果操作过量,即使对市场判断正确,仍会一败涂地。

李驰(中国巴菲特)
高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo


There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
冷眼(冯时能)投资概念
“买股票就是买公司的股份,买股份就是与陌生人合股做生意”。
合股做生意,则公司股份的业绩高于一切,而股票的价值决定于盈利。
价值是本,价格是末,故公司比股市重要百倍。
曹仁超-香港股神/港股明灯
1.有智慧,不如趁势
2.止损不止盈
成功者所以成功,是因为不怕失败!失败者所以失败,是失败后不再尝试!
曾淵滄-散户明灯
每逢灾难就是机会,而是在灾难发生时贱价买股票,然后放在一边,耐性地等灾难结束
  • Selected Indexes 52 week range

  • Margin of Safety

    Investment Clock

    World's First Interactive Investment Clock