'Taper' talk tapers off again - for now

The much-dreaded taper threat resurfaced last week to spook global markets only to, well, taper off towards the end of the week.

A recent spate of unexpectedly strong economic data from the United States had resurrected fears that the Federal Reserve will bring forward its timeline for withdrawing, or tapering, its monetary stimulus.

The world's largest economy added more than 200,000 non-farm jobs last month and grew 2.8 per cent in the July to September quarter.

This triggered worries that the extraordinary stimulus, which has supported the US recovery and helped boost global equity markets, could be removed as soon as next month.

But incoming Fed chief Janet Yellen put these fears to rest last Thursday - and exhilarated markets in the process - when she said the economy was still far from strong enough to stand on its own.

"We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," she said at her confirmation hearing.

"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."

Her comments "suggest that the recent good non-farm payrolls numbers are unlikely to trigger a tapering of asset purchases in December and leave us more comfortable with our call that a March move is more probable", said ABN Amro economist Nick Kounis.

Still, Mr Paul Ashworth, chief US economist at Capital Economics, is not ruling out a taper next month: "October's labour market data is certainly strong enough to warrant an earlier move, particularly alongside the news of an acceleration in gross domestic product growth in the third quarter.

"But given all the recent flip-flopping, we're unsure of exactly what would be enough to convince the Fed to act at any particular meeting. November's labour market figures could yet end up being the deciding factor."

In contrast to the US, the other two major developed economies gave investors less to cheer about last week.

The euro zone's economy grew just 0.1 per cent in the third quarter from the previous three months, weighed down by record-high unemployment.

Japan also hit a speed bump, with growth in the July to September period halving from the first six months on weaker consumer spending and exports.

But better news is expected on the export front this week, with Japan's shipments expected to have jumped last month by the most in three years, according to economists polled by Reuters. The trade data is due to be released on Wednesday.

Meanwhile, Singapore will also release a slew of economic data this week, which markets generally expect to be positive.

Last month's trade numbers will be out today, and economists predict that exports fell for a ninth straight month. But some say last month's fall could have narrowed from September on the back of strong sentiment among manufacturers.

That will be followed by figures on the Singapore economy's third-quarter performance on Thursday.

Flash estimates showed that the economy grew 5.1 per cent in the July to September quarter from the year before, but analysts expect this figure to be revised upwards due to a surge in manufacturing in September.

fiochan@sph.com.sg

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