Tuesday, June 11, 2013
Pre-open sentiment is on the weak side today, with markets apparently disappointed over lack of fresh action from the Bank of Japan (BoJ). The BoJ wasn’t expected to announce any major new measures as its massive quantitative easing program is less than two months old. But market participants expected it to do something to rein in the volatility in the Japanese government bond market. The BoJ instead didn’t do anything, aside from patting itself on the back for a positive outlook for the economy.
All of this comes in a backdrop of nervousness about the Fed’s next step, which has made ‘tapering’ a regular word in market vocabulary. Even Greenspan has jumped into the conversation, arguing in favor of starting the normalization process. That the Fed has to ‘taper’ is a given, the question is about the timing of the move.
We may not get the announcement in next week’s meeting, but the post-meeting statement’s assessment of a steadily improving economy will likely get interpreted as such by the markets. Importantly, this meeting will be followed by the quarterly Bernanke press conference. And we know that Bernanke is no Greenspan when it comes to speaking his mind.
Bernanke doesn’t have a lot of time left on the Fed; he has reportedly told his friends that he wants to get back to his teaching job at Princeton when his term ends in January 2014. He is skipping Jackson Hole this summer and could very well be a lame duck in the fall. As such, he probably has started thinking in terms of his legacy already, which at this stage is centered on the future of the QE program. Given this, it is perhaps reasonable to expect him to show his hand at next Wednesday's press event.
Bernanke aside, Apple (AAPL) is trying bring back its cool image, and perhaps make us forget about the Fed for a while, by announcing a facelift for its mobile operating system. I don’t see how this alone could be enough to turn around the company’s fortunes, but they may find some traction with the music streaming service. The music streaming is hardly virgin territory though, as Pandora Media (P) is an established incumbent in that space. In the Amazon (AMZN) vs. Netflix (NFLX) duel, we saw that dedicated one-trick ponies can hold their own against fierce rivals. I wouldn’t be surprised if the outcome of the Apple vs. Pandora match is any different. But streaming music seems like a natural progression for iTunes.
Director of Research
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