Futures Implies Fed Tapering To Taper By 2015

The proverbial rubber is meeting the road for Central Bankers. I found this interesting.

The Futures Market Implies The Fed "Taper" To End By Early 2015
The rate curve implied by the Fed Funds futures has steepened considerably over the past month. The market now anticipates the Fed beginning to raise the overnight rate in May of 2015. A month ago the expectation was for the end of 2015 - the implied rate hike has been pulled forward.

But the Fed can't start raising rates before the end of the unconventional monetary policy measures (can't be raising rates while buying securities at the same time). That means if the Fed begins to "taper" off bond buying in the next few months, it will have about one and a half years to go from $85 bn of securities purchases per month to zero.

And here's a look at the US 10 year yield, which traded to the highest level since late October 2011/March 2012.

The Currencies, and the Aussie/Yen unwind in particular have been Ground Zero for global volatility of late. The Yen has had a nearly 300 pip range and the Nikkei had a nearly 700 point range on "disappointing" Bank of Japan meeting.

Here's a five-year look at the Aussie/Yen cross
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It will be interesting to see what happens if we test the old highs on the cross from early 2010/2011/and 2012 around 88 - 89.

The ETF proxy (as well as Aussie futures) tested the old lows from October 4, 2011 and May 14, 2012 this morning. The former was a critical reversal day for global risk markets (after tanking in August/September of 11). The latter was a tradable bottom in some Commodities last year that was retested in early June (2012).

Here's how some Commodity sensitive equity markets have performed lately.

The Fed meets next week with a decision on Wednesday. There is a USDA report tomorrow morning at 11 AM Chicago time.

I would watch Copper and watch China for your next leg.......I would be careful either way.


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