Richard Gibbs of Macquarie Securities shares his views on whether the Federal Reserve under Janet Yellen will continue with tapering, and also the US equity market. He also talks about the Chinese market.
Below is the verbatim transcript of Richard Gibbs' interview with Ekta Batra and Reema Tendulkar on CNBC-TV18.
Ekta: Can you start by telling us about what the markets have taken away from Janet Yellen's first congressional speech, because now the markets are possibly presuming that tapering is intact. So what would the tapering timeline be now?
A: I think it is still the timeline that was originally set out with the Bernanke Federal Reserve, though on the Yellen Federal Reserve it looks like it is going to be policy consistency and that has really been the big positive for markets. It is at consistent time with Janet Yellen's testimony of last night and as a consequence of that one would expect that we will be under USD 14 billion/month in asset or bond purchases in terms of middle of this year and the one-off to occur by end of this year, so that means that asset purchases under the quantitative easing (QE) program 3 will be around zero by the outturn of this year into 2015.
Reema: So that would mean that in March as well you would expect about a USD 10 billion reduction in monthly purchases, that would be her first policy when an action can be affected. So in March as well we expect a USD 10 billion reduction?
A: That is right. At this stage you would have to say that is most likely going to be the case, because those who have been getting a bit concerned about the positive data or the fractious nature of the economic data in the US missing the fact that we have had some pretty severe weather conditions across North America in the last couple of months, so we are going to get distortions in the data for a month-month and half and they will need to be looked through and I think Yellen was again reaffirming last night that they are going to be setting policy with a view to the medium-term strategies for monetary policy in the US.
Ekta: What do you think Yellen's stance towards emerging markets would be? Would it be the same as Ben Bernanke's?
A: Janet Yellen is the Chairman of the Board of Governance of the Federal Reserve System and that is the central bank of United States of America and her first priority must be to setting policy consistent with the objective to the United States economy and while she had to deal with the spill over effects into emerging markets that will not be allowed to drive policy and policy decision making in the United States.
Reema: What happens to the US equities from hereon? They have managed to digest mix economic data, now you have got a consistency in the monetary policy as well. Do they head significantly higher from hereon? How would you map the trajectory for the equities?
A: We have been at a rule out or solve one unknown if you like for this equation. The second unknown is going to be tested as we move forward and assuring markets maintain their strength of course is going to be the growth dynamics, the macro environment and whether or not that is going to be sufficient and show a sufficient recovery in ongoing sense to support earnings expectations that is going be increasingly embedded in the price movements we are seeing in stocks in the US. So really it will be a question of whether the macro environment continues to recover at a fast enough pace to satisfy investors\\' expectations and I suspect we will have a few periodic fluctuations in the market as we move to the middle of this year where some of the data will shake a little bit of that confidence in these expectations for earnings.
Ekta: How big a factor is China now because of the trade deficit data or rather the trade surplus data that we got from China today, but then the mixed PMI data that we have received from China in the past couple of weeks?
A: Yes, the data is a little confusing. Their trade surplus data that we have just received has been another one of those lip sealed ones and China has began moving into realms of where we are going to get, data that is not uniformly consistent and that is also going to be part and parcel of the reform process going on now in China and also the shift in the composition of growth overall. I think what we can expect is this is going to be having to some more variable growth outcomes in China and that is going to chase the blue sky fears if you like we believe that China's growth trajectory should always be rising and rising steeply. That is not going to be the case. We think we are going to see a pronounced v-shaped economic recovery in China over the course of 2014.
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