Tapering most likely in March now; jobs data eyed: Finaport

The US jobs figures likely to come today are important macro data and a downward revision of the same is likely in the futures says Hans Goetti, chief investment officer, Finaport.

On the expectation of the Fed tapering, Goetti says that the easing of the bond buying program will now, in all probability happen in March.
“This means higher equity prices, higher asset prices, not only in developed market but also in the emerging markets (EMs) where you will see again inflows into those areas which supposedly have the highest growth,” he adds. Below is the edited transcript of Goetti's interview to CNBC-TV18. Q: All eyes are on the US non-farm payrolls data. Do you think that it assumes that much importance or is it a given that maybe there will be more emphasis on data going forward, especially post the US government shutdown?
A: The number of course is important simply because everybody is watching it. The consensus seems to be for an increase of 180k jobs, but what we also should look at are the revisions of prior months and we have had a history where prior month numbers were revised downward and that could be the case again this time around. So, for now with the government shutdown and the lack of data, there is very little action from the Fed at this point in time and we will see what happens next. Q: From hereon maybe till the end of the year, where do you think the big gains are going to come through? Is it going to be a continuation of the developed markets leading the rally or perhaps emerging markets given they are trading at a significant discount to its historical averages or maybe even the developed markets (EMs) could now come into the play?
A: Markets are essentially driven by liquidity. This has been the case for the past few years and we have a situation where there is a 90 percent correlation between the size of the Fed's balance sheet and the direction of the equity market. With tapering off the table right now, we believe until probably about March 2014 there will be more Quantitative Easing (QE) ahead in the next few months. This means higher equity prices, higher asset prices, equity prices not only in developed world but also in the emerging world where you will see again inflows into those areas which supposedly have the highest growth. Q: What is the consensus timeline for tapering now?
A: We had the government shutdown, then we had the debt ceiling and we are going to relive this again in January with the Budget, then in February with the government with the debt ceiling again.
We do not think tapering will happen before that, it will be around the time when Janet Yellen takes over. So, that leaves us with March as the most likely date. It will be data dependent. We think that economic growth is strong enough for the Fed to taper because at the moment monetary policy is so easy, it is likely sign to fight a deep recession rather than an economy that is growing at between 1.5 and 2 percent. We think March is probably the best timing we could come up with.