Talking Points:
• The Federal Reserve's transition from accommodative towards tighter monetary policy has unsettled the markets
• Major counterparts pursuing stimulus programs like the ECB and BoJ may help 'offset' the Fed's exit
• Yet, risk appetite is starting to degrade QE confidence and a forward looking market is more wary of change
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As the Fed contemplates a hike and investors worry over the outcome, we look back to see that the shift in sentiment occurred well before the actual move to tighten. In fact, the first major shock surrounding the US policy course adjustment happened before the central bank even started to ease back on its open-ended QE3 program (now referred to as the 'Taper Tantrum'). Given the forward thinking surrounding the US central bank's influence of the financial markets and growth prospects, what should we expect from the other major players in the global financial system? The ECB and BoJ are still running large stimulus programs, and there are some that believe these efforts can counterbalance the Fed's withdrawal. However, this support will not continue to grow forever. When will fear of its end start to kick in? Will the confidence they supply reach as far and last as long as what the US group managed? We discuss these concerns in today's Strategy Video.
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