Revolving Around Bernanke

Federal Reserve Chairman Ben Bernanke has been the show stopper since days now. The consistent dodging between his perceived ‘hawkish’ and ‘dovish’ stance has caused the markets to aggressively oscillate many a times. It isn’t uncommon for the markets to be driven by speculation around what he will say, what he says and what people think of what he has said. Market direction in the US, and eventually around the globe has become rather Bernanke centric.

Ben Bernanke,
Federal Reserve Chairman 

Yesterday, US indices closed higher between 0.12% and 0.32% and Europe gained between 0.24% and 0.66%. Asian stocks (except China) have seen a positive opening. Bernanke seems to have said something positive.

In testimony on Capitol Hill, Bernanke said the Fed’s USD 85 billion per month bond-buying programme is ‘by no means on a preset course’. The bond-buying can be curbed or extended depending on the economic climate.

Yes, the markets already knew the consideration of a broad sight by the Fed in being decisive about the monetary policy. However, after recent comments by Bernanke on beginning the tapering down of the programme by the end of the year sent jitters across global markets. These comments hence provided for substantial support and optimism around the continuity of quantitative easing.

In his remarks prepared for delivery to the House Financial Services Committee, Bernanke reiterated his earlier estimate of the economy being in a position to allow the Fed to pull-back on monetary easing by the end of the year and end it by the middle of 2014. However, it is the flexibility that Bernanke showed that cheered the markets.

This boils down to the same fundamental that the markets have been functioning on lately. Good economic data is reacted upon negatively as this indicates a prospective slowdown in quantitative easing and vice versa. On similar lines, the US Department of Commerce released data on construction of new homes that indicated a decline of 9.9% in June 2013, reaching the lowest level in more than a year.

Bernanke’s words have spread a positive sentiment around the world and that is likely to apply for India as well. Asia is seeing some pressure as China has been showing reluctance in providing additional stimulus. This may add some pressure on the markets. However, the overall mood seems positive.