From the SMH come s neat observation by Morgan Stanley:
Are we finally seeing the end of the taper tantrum? Morgan Stanley asks in a note to clients:
- The second half of last year will be remembered by macro investors for the taper tantrum. Perversely, good economic data was bad for equity markets as it meant a faster withdrawal of liquidity; the same liquidity that caused markets to rerate as earnings remained sluggish.
- Indeed, traditional correlations between bond yields (a proxy for economic expectations) and equity markets broke down after taper talks in May 2013 and became negative, both in the US and in Australia. (-0.13 on average from May 2013 to Jan 2014).
- It appears the taper tantrum is ending, at least for now. Daily equity-bond correlations have recently stabilised at levels around 0.4. This also reinforces the positive market response to Fed tapering last month.
- What does this all mean? The market seems to have moved on from the liquidity v growth debate – it is now all about growth.
- And we expect 2014 to be the year where growth gathers momentum in Australia.
I obviously disagree on the Australian forecast. And it remains to be seen whether taper dependent stocks can hold up on good data. I’m still backing the S&P to rise because even if it doesn’t because I believe the “Yellen put” will backstop any downturn.
