Skip to main content

The Globe and Mail

Markets could ‘change in a heartbeat’ depending on Federal Reserve ‘tapering’ today

These are stories Report on Business is following Wednesday, Sept. 18, 2013.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Markets await Fed
The Federal Reserve is widely expected to announce today that it plans to start easing its massive bond-buying program, a move that could spook or buoy markets depending on how far it goes.

Story continues below advertisement

While such a move is not a certainty, investors have, for some time now, been awaiting this "tapering" of the stimulus known as quantitative easing, or QE. The Federal Open Market Committee, the central bank's policy-setting group, announces its decision this afternoon.

"Global markets are hardly demonstrating deep worries over today's FOMC statement, but clearly that could change in a heartbeat this afternoon," said Derek Holt of Scotia Capital.

"The current sanguine attitude is either because markets think tapering is priced in, or, more likely in my opinion is that they realize that consensus opinion has swung away from its earlier view that the Fed would taper big today, and with near certainty."

The U.S. central bank now spends $85-billion (U.S.) a month to buy assets, stimulus aimed at juicing the economy and helping to ease the high level of unemployment brought by the recession. It has signalled it could begin pulling back this month and ending the program altogether next year.

As our Washington correspondent Kevin Carmichael reports, a two-day meeting ends today with a Fed policy statement and news conference with central bank chairman Ben Bernanke.

Investors are concerned that the U.S. economy and the markets may not be able to stand on their own when the QE program winds down, which is why "tapering" has become such a watchword.

Thus the expectation that, when it happens, the Fed will take small steps, possibly by announcing today that it's cutting the purchases by $10-billion to $15-billion.

Story continues below advertisement

All of which makes today an anxious one in the markets as the Fed concludes its meeting.

"The most simple of attitudes and opinions would suggest that if the Fed's reduction is greater than the predicted $15-billion, the market would adversely react so equity prices are likely to come off and the dollar might strengthen," said sales trader Ankit Kapur of CMC Markets in London.

"If we consider the opposite decision by the Fed, meaning they cut less than the predicted amount, e.g. $10-billion, then we are likely to see the equity markets strengthen and the dollar lose pace," he added.

"One thing that should be taken into account is that the market is awash with whispers that the Fed's reduction could be about $10-billion, so the markets might have already priced in a figure of $10-billion or a little lower, and hence not react as strongly as they would compared to a greater cutback in the $85-billion-a-month program."

Kit Juckes, the chief of foreign exchange at Société Générale, believes the amount of the cutback isn't all that important.

"Unless there is a shock, and they delay, the actual size matters little," he said.

Story continues below advertisement

"We expect them to finish tapering in March, in time for the unemployment rate to fall below 7 per cent."

Mr. Juckes, who is based in Europe, stressed, as has Mr. Bernanke, that tapering is not tightening. Easing the program does not mean that the central bank is anywhere near ready to begin hiking its benchmark interest rate from its emergency low of effectively zero.

"I have visited Kansas, Chicago, Boston, New York, Sacramento and San Francisco on this trip," he said.

"San Francisco wins the crane count. Everywhere, there is doubt, about whether the US economic recovery is strong enough to cope with tightening. Which just highlights the main point – that tapering isn't tightening. On the other side of the tapering announcement, U.S. monetary policy will still be incredibly easy, asset-friendly, and not very dollar friendly."

(Mr. Carmichael will be reporting on the Fed decision, and the news conference with Mr. Bernanke.)

Canada on the rebound, Poloz says
Bank of Canada Governor Stephen Poloz beat his U.S. counterpart to the podium today, telling a Vancouver audience that Canada is on its "way home" to more natural economic growth as central banks prepare to pull back from nearly six years of remarkably low interest rates.

Making just his second public speech since taking over from Mark Carney in June, Mr. Poloz said the key pieces of a more normal and self-sustaining economy are falling into place, The Globe and Mail's Barrie McKenna reports.

"We are now close to the tipping point from improving confidence into expanding capacity," Mr. Poloz said in notes prepared for a speech to members of the Vancouver Board of Trade.

Most economists don't expect the Bank of Canada to start raising its key overnight rate -- fixed at 1 per cent since September 2010 -- until late 2014 or even 2015.

But the only hint from Mr. Poloz on the timing of eventual higher rates here came when he said the economy can support much stronger activity "without stoking inflation," given the slack in the labour market. That suggests, the bank could be on hold for some time.

Starbucks pleads for no guns
Starbucks Corp. is asking its customers in the United States not to bring guns into its coffee shops.

Chief executive officer Howard Schultz, however, stressed in an open letter last night that he's not banning firearms.

"Today we are respectfully requesting that customers no longer bring firearms into our stores or outdoor seating areas – even in states where 'open carry' is permitted – unless they are authorized law enforcement personnel," Mr. Schultz said in the letter posted on the chain's website.

"This is a request and not an outright ban," he added.

"Why? Because we want to give responsible gun owners the chance to respect our request – and also because enforcing a ban would potentially require our partners to confront armed customers, and this is not a role I am comfortable asking Starbucks partners to take on."

Mr. Schultz said Starbucks has been "thrust unwillingly" into the gun control debate given its policy to allow its customers to simply follow firearm restrictions in various jurisdictions.

Thus the reference to "open carry," the phrase for state laws that allow Americans to open carry guns.

"We have chosen this approach because we believe our store partners should not be put in the uncomfortable position of requiring customers to disarm or leave our stores," Mr. Schultz said.

"We believe that gun policy should be addressed by government and law enforcement – not by Starbucks and our store partners."

He bemoaned the fact, however, that the gun control debate has become "increasingly uncivil and, in some cases, even threatening," given recent events by the pro forces in what Mr. Schultz said were "misleading called 'Starbucks Appreciation Days' that disingenuously portray Starbucks as a champion of 'open carry.'"

Today, an organization known as Moms Demand Action For Gun Sense In America took credit for pressuring the coffee chain into acting, citing a campaign it launched in July.

"This is a huge win for American moms who fought for this policy change, which will make Starbucks customers safer," the founder of the group, Shannon Watts, said in a statement.

"Because Starbucks is a business icon, this policy change represents a sea change in American culture, which is finally shifting away from guns in public places."

BlackBerry launches Z30
Amidst uncertainty about its future as a public company, BlackBerry Ltd. is launching a new flagship smartphone.

The Waterloo, Ont.-based smartphone maker today introduced the BlackBerry Z30, The Globe and Mail's Omar El Akkad reports.

The five-inch touchscreen device comes with myriad new features, including stereo speakers, a 1.7-gigahertz processor and "priority hub" software that learns a user's most important contacts and conversations and collects them in one place.

BlackBerry will begin rolling out the Z30 next week through its global carrier partners, starting in the United Kingdom and the Middle East and expanding to other markets in the lead-up to the holiday season.

Apple launches new operating system
Users of everything "i" get their hands on a new operating system today with a big overhaul of Apple Inc.'s iOS.

The Financial Times reports that iOS7 will be "more radical, with a new overall look and feel," which some believe could spark an initial "backlash" among users of iPhones and iPads.

The revamped iOS7 comes just after the introduction of two new iPhones earlier this month, the 5S and the lower-end 5C.

FedEx profit climbs
FedEx Corp. gave the markets an upbeat view today, with stronger first-quarter profit and a forecast that it still believes it will meet its earlier projections despite the uncertain economic outlook.

FedEx profit climbed to $489-million (U.S.) or $1.53 a share from $459-million or $1.45 a year earlier, while revenue increased by 2 per cent to $11-billion.

The global courier also held to its outlook for full-year better earnings per share to the tune of 7 per cent to 13 per cent, depending on fuel prices, projected U.S. economic growth of 2.1 per cent and forecast global growth of 2.6 per cent.

"FedEx Express remains focused on reducing costs while facing challenging global economic conditions," said chief executive officer Frederick Smith.

Streetwise (for subscribers)

Economy Lab

ROB Insight (for subscribers)

Business ticker

Report an error Licensing Options
About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Please note that our commenting partner Civil Comments is closing down. As such we will be implementing a new commenting partner in the coming weeks. As of December 20th, 2017 we will be shutting down commenting on all article pages across our site while we do the maintenance and updates. We understand that commenting is important to our audience and hope to have a technical solution in place January 2018.

Discussion loading… ✨