THERE IS STILL PLENTY OF ACCOMMODATION IN THE INTERNATIONAL BANKING SYSTEM, AS WELL, DESPITE SOME CENTRAL BANKS ACTUALLY ANNOUNCING A TAPERING SCHEDULE IN ADDITION TO TALK OF WITHDRAWING OTHER FORMS OF ACCOMMODATION.


TOO MUCH ATTENTION FOCUSED ON TAPERING? In my opinion there is currently too much attention given to when the Federal Reserve will taper its asset-purchase program. Whether there is an earlier than anticipated tapering or a delayed tapering, the fact remains that the fed funds rate is likely to remain at the historical low rate of zero to 25 basis points for quite a while.


Chart 2: U.S. Federal Funds Rate


Source: RateSource: Tradingeconomics.com, Federal Reserve


While I believe there will be a tapering at some point, most likely it will take place later rather than sooner and be a “dovish” taper with any reduction being small, especially now that economists have begun slashing U.S. third quarter gross domestic product estimates following mostly softer than expected economic data. Even when the Federal Reserve does taper its asset-purchase plan, my view remains that an earlier or later tapering would only represent a partial withdrawal of accommodation.


PLENTY OF PUNCH LEFT IN THE PUNCH BOWL There is still plenty of accommodation in the international banking system, as well, despite some central banks actually announcing a tapering schedule in addition to talk of withdrawing other forms of accommodation. In spite of some central banks tilting toward a less accommodative policy, there is still plenty of stimulus remaining. Keep in mind that some countries in Europe and in Japan continue to have negative interest rates. Money tends to flow to where it is treated the best, and currently that asset-class is equities. A Federal Reserve tapering will not derail the bull market in stock index futures. The global reflation scenario will still largely be on track and will remain a major tailwind and ongoing dominant fundamental that supports futures in the long-term. Higher prices are likely for U.S. stock index futures.


Alan Bush


E: alan.bush@admis.com T: 001 312 242 7911


17 | ADMISI - The Ghost In The Machine | Q3 Edition 2021


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