Expect Fed to not announce tapering immediately: Geosphere Capital

Hiring surged in July as American employers added 943,000 jobs. The unemployment rate dropped to 5.4 percent, another sign that the US economy continues to bounce back with surprising vigour from last year's coronavirus shutdown. The July numbers exceeded economists' forecast for more than 860,000 new jobs.

The rollout of vaccines has encouraged businesses to reopen and consumers to return to shops, restaurants and bars that they had shunned for months after the pandemic struck. As a result, the economy has bounded back with unexpected speed. The International Monetary Fund (IMF) expects U.S. gross domestic product, the broadest measure of economic output to grow 7% this year, its fastest pace since 1984.

Arvind Sanger of Geosphere Capital said, “I think eventually we are going to get recovery; it had a couple of weak and somewhat disappointing numbers and so this one was better than expected. Now we do have elements of the third wave going on in COVID cases in the US so I am not sure whether the Delta variant has impacted as much. I am pretty sure the impact was not much in numbers so my sense is that the Fed is not going to jump the gun here and immediately announce that tapering is around the corner.”

He further added, “They are going to wait and watch how this third wave of COVID plays out and whether the data takes a bit of a pause. There is a very important additional element to consider that the issuance of bonds by the US Treasury is expected to decline meaningfully towards the end of this year. So there is a possibility that Fed could time its taper in conjunction with it.”

On buying opportunity, Sanger said, “I feel very comfortable, whether we look at the oil signal, or we look at whether taper happens or not, taper is going to happen eventually, when the economy recovers therefore, I think that this dip is likely to prove to be another buying opportunity. I don't think after Delta variant, we have to keep worrying, there will be all other variants, but it sounds like the Delta variant is the most aggressive, most dangerous variant that has come along in this whole COVID wave.”

“It looks like if we look at the UK data, the delta variant impact peaked a few weeks ago, and the death rate in a highly vaccinated country remains very, very manageable. So I think people are going to learn to live with future variants without worrying about activity coming to a complete halt,” said Sanger.

On mega trillion-dollar infrastructure bill, Sanger said, “That would be another juice to the market, it would be another juice to money flowing through the economy and driving demand for different goods and services, and that is less infrastructure focus, that is more people support and other things that would put money into the economy on a sustained long-term basis. I think this would again drive potentially more fuel to the fire in terms of both consumer and business spending. Therefore, I think we are embarking on a cycle where government and private sector capex could be an important ingredient of the cycle, both globally and in India.”