This is a strong time for equities, that are likely to be in the green post the Fed’s decision on tapering its bond buying programme (Quantitative Easing 3), says Richard Gibbs, global head, Macquarie Securities.
Speaking to CNBC-TV18, Gibbs says that he expects more clarity from the Fed and that a decision would be taken to strengthen the Fed’s forward guidance.
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“That will involve at one instance the dropping of the unemployment rate target from 6.5 percent to 6 percent and will also giving a bit more clarity in relation to the whole asset purchase programme and the exit strategy for the Federal Reserve,” he adds.
Below is the edited transcript of Gibbs’ interview to CNBC-TV18.
Q: What is your sense, tomorrow same time would emerging markets be terribly in the green because the FOMC would have confirmed risk money is continuing?
A: That will still be in the green and I think it is a strong time for equities. We will have a bit more clarity and I think there will be decision taken to strengthen the forward guidance of the FOMC and the Federal Reserve. That will involve at one instance the dropping of the unemployment rate target from 6.5 percent to 6 percent and will also giving a bit more clarity in relation to the whole asset purchase programme and the exit strategy for the Federal Reserve.
Q: You spoke about the unemployment target threshold being brought down but what is your expectation in terms of how dovish the taper talk could be and whether it will be more tilted towards any moving of interest rates etc?
A: The tapering talk over the discussion will be a quantitative one. It will be whether or not there is a USD 5-10 billion taper announced. But the Fed will also leave the key-line, that it stands-by to increase or decrease the right of asset purchase as always to maintain appropriate level of monetary accommodation.
I think that is very important as that suggests that this is going to be a dynamic process. It also suggests that they are very mindful of the impact on the global financial conditions and of course on those 10-year bond yields of any untoward and unwieldy exit from the asset purchase programme.
Q: The markets in India for instance both the Nifty and the currency have walked a good distance from the kind of lows we saw 10 days ago, September 3 or September 4, how much more do you think both of them have to go higher?
A: I think they can go further. I think there is a lot of strength in the recovery in the exchange rate and this has been due to a very favourable reception of the new RBI governor.
What we heard and read about this in last week, would be tested with Rajan as just how much operational success he has, bearing in mind that he has a very broad set of objectives and he has obviously a wholly politicised environment that he is now coming into with the election in May of next year. So, the extent to which he can deliver early on some of the statements he has made and the objectives that he has set for himself and RBI policy would be important.