To the already burgeoning lexicon related to the Global Financial Crisis, we can now add “taper tantrum”. The tantrum was felt around the world as markets reacted poorly to signals from the Fed as it lay the groundwork for an orderly exit from QE and its zero rate policy, sending bond yields higher and setting off a wave of re-pricing. It didn’t matter that nothing in the FOMC minutes was a surprise. QE will taper and interest rates will go up….eventually, but not until the Fed-set inflation and employment markers are met. This turbulence and volatility also brought into sharp focus the emerging markets' slowdown, China’s debt situation and the ongoing Eurozone recession. A weaker-than-expected first quarter U.S. GDP report didn’t do much to assuage concerns (1.8%, down from a prior estimate of 2.4%). Optimists point to an economy that is moving along at a modest pace despite the noise. Jobless claims keep trending down, the housing sector gains strength and inflation remains a non-issue. Time will tell if the markets are ready to accept if the economy is closer to letting go of the QE crutch.
Source : CBRE Global Investors