Global markets on edge, watch key data for Fed tapering clues

New York: Global markets are on edge wondering whether the US Federal Reserve will start to reduce their quantitative easing program in December as key data clues pour in this week. On Monday, US stocks initially rose following positive manufacturing data, but later fell as investors weighed its likely impact on the Fed’s decision-making.

All eyes are on this month’s Federal Open Market Committee meeting on December 17-18 where the US central bank may consider reducing its bond-buying program.

The Institute for Supply Management said US manufacturing activity gained momentum last month, with the group’s November reading rising to 57.3 from 56.4. The reading was the highest since April 2011. In our topsy-turvy world, good news is interpreted dourly, as investors from India to America fret that positive data may prompt the Fed to begin tapering in December.

The Dow Jones Industrial Average declined 77.64 points, or 0.5 percent to 16008.77, its biggest one-day drop since Nov 7 as investors honed in on the prospect of the Fed tapering its $85 billion monthly bond-buying stimulus program.

Five years of easy money policies and money printing at the US Federal Reserve have left trillions of dollars sloshing around the global financial system, turbo-charging emerging markets like India, and creating froth in everything from art to Bitcoins.

With investors looking for tapering clues, the big focus this week will be on two American employment reports. On Wednesday, Automatic Data Processing (ADP), a national payroll firm will report on jobs gained or lost in the private sector. On Friday, the US Labor Department issues the Employment Situation report on public and private sector jobs.

Taper terror grew after Federal Reserve Bank of Atlanta President Dennis Lockhart told reporters the central bank will consider reducing its bond-buying program at the Federal Open Market Committee meeting. A tapering “could very well take place” in December, Lockhart said in an interview on Bloomberg Radio.

But based on incoming Fed Chairwoman Janet Yellen’s soothing comments on November 15 at her Senate confirmation hearings, many investors think she will wait longer to make cuts.

“We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession,” Yellen told US senators. “Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential.”

The global markets latched onto the remarks which underlined Yellen’s staunchly pro-stimulus stance. Yellen takes office February 1, pending Senate confirmation. If stimulus lasts longer, that makes riskier emerging markets more attractive for foreign investors, which helps explain the Indian stock market’s recent resilience.

The benchmark BSE index ended up 0.51 percent and the NSE index closed 0.68 percent higher, as stocks gained on the back of strong manufacturing data at home and India’s gross domestic product also increased to 4.8 percent in the third quarter from a year earlier.

Expectations that the Fed might start to taper its stimulus program have been a concern for the world since May. Battered emerging markets like India got a reprieve when the Fed shocked investors in September by maintaining its cash injections of $85 billion a month in full. The Fed’s decision in September not to reduce stimulus was a “relatively close call” for policymakers, according to minutes of the meeting that suggested there was still support to trim bond-buying this year.