Fed tapering, debt ceiling pushed to 2014 now: Palmer

The US Senate's decision to end the political impasse by raising the debt ceiling is not the decision most investors were hoping for, says Christopher Palmer, director of Global Emerging Markets, Henderson Global Investors.

Speaking to CNBC-TV18, Palmer said, "It (the Senate decision) just pushes out the resolution of this further into the future."
Palmer further adds that the bipartisan decision has now forced both Fed’s Quantitative Easing (QE3) and the debt ceiling debate into the next calendar year. Below is the edited transcript of Palmer’s interview to CNBC-TV18. Q: I am glad we finally do have a deal on the table, but we saw both Asia selloff after that news and Europe opening considerably weak. Why are the markets behaving in this fashion given that they were nervous in the last couple of days about this going all the way down to the wire?
A: Some of the weaker markets had been rallying fairly strongly into the debt negotiations. Atleast in last few days it had become part of the consensus that a deal would be reached. Q: So this is sell on news?
A: Yes, I think it is sell on news. I do not think it is particularly strong news for markets. It does push out taper most likely further into 2014, so we are seeing the dollar react negatively, but emerging markets (EMs) had already had about a 10-12 percent rally since early September and in particular, the last two weeks had become quite comfortable with the idea of a last minute deal. This is unfortunately not the deal that most investors had been hoping for and the chances for a grand deal now are pushed out well into 2014. Q: If you were to look at this skeptically, the debt ceiling has now been pushed out to early February, next year is going to be an election year for the US, but more importantly that is going to be the quarter that we are likely to see the beginning of a taper. So we have now got a double whammy lined up for us in the first quarter of next year?
A: We will have to see what the Fed says, but what has already seen priced into the bond market is the likelihood that taper is probably off the table until this issue is resolved. Tapering is off the table even for the election year itself. The Fed is adjusting its message with one eye on Washington which means we could have bond yields hovering around present levels for sometime, a weaker dollar and probably a continuation of this relief rally we have seen in some of the more fragile emerging markets in the last couple of months. It just pushes out the resolution of this further into the future which today after the rally we have had in a lot of these assets is leading to see some profit taking and a bit of disappointment.