Taper Tantrum Hits Markets

The market is desperate for a sense of when the Fed will taper as the reaction to an FT story showed. The euro was the top performer while NZD and JPY lagged. The highlight of Asian trading is the release of the June RBA minutes. Premium Insights return on Tuesday.

The market got a taste of what's coming at Wednesday's FOMC after a FT story hinted at tapering. The tone of the story suggested a leak from the Fed. The reaction was modest dollar strength and substantial weakness in stocks.

The swiftness of the market reaction even troubled the story's author and he took to twitter where he said “people need to chill out. The Fed does not leak anything to any journalist to steer markets.”

Instead of chilling out, the market completely reversed and sold the US dollar heavily. The euro rose 40 pips to 1.3380, just shy of the four-month high set last week.

Earlier in the day, cable hit the highest since February 11 as optimism about the economy builds. We warn that Carney's start at the Bank of England could be a game-changer if he introduces dovish policies.

US economic data was generally upbeat with the Empire Fed at +7.8 compared to a flat reading expected and the NAHB homebuilder sentiment report hitting a 6-year high at 52 versus 45 expected.

The schedule in Asia is busy. At 0130 GMT, the RBA will release the minutes of the June meeting. At the same time, China releases property price data for May. Thirty minutes later the Conference Board releases the May China leading index. Later, a 0430 GM, Japan delivers industrial production data.

Yesterday we talked about two big stories that were both AUD negatives yet the Australian dollar finished nearly flat on the day. When a currency doesn't fall on bad news, it's often a sign a bottom is near.