EFTA Document EFTA01758391

From: Dubov, Anastasia X Sent: Wednesday, June 19, 2013 9:39 PM To: Epstein, Jeffrey (jeevacation@gmail.com) Cc: Barrett, Paul 5; Barrett Team Subject: Fed - recap of decision/press conf Jeffrey, Quick update post Fed commentar=. =OA JPY: 96.45 (1.25% move higher) =0D CADJPY: 93.80 (0.40% move) =OD EUR: 1.3290 (1% move lower) =OD EURCHF: 1.2335 (0.20% move) =OD 10yr: +7.65% at 2.35 =/b> Bottom Line</=> • &nbs=; Overall this was more hawki=h decision/press conf than expected for one reason in particular: Bern=nke (for the first time) articulated a QE tapering pace and it was=faster/more aggressive than expected. Bernanke implied that the=Fed would begin tapering later this year assuming growth stays at t=e present pace and would have purchases ended by mid '14=(he added that the UR would be in the vicinity of —7% once QE wrapped up n=xt year). While many market participants were beginning to anticip=te reduced purchases later in '13 the thinking was the pace would be=very gradual (and not conclude until later in '14). (he also didn't do the best job during some of the Q&= explaining the tapering logistics). Beyond QE, the Fed's me=sage on growth was upgraded slightly and they don't sound all that c=ncerned about disinflation. As far as trading is concerned, Bernan=e's new message hit TSYs hard and it felt like stocks EFTA_R1_00061255 EFTA01758391 followed=yields (more than they did the more hawkish Fed message). =OTTOM LINE — the Fed was hawkish and stocks sold off BUT keep in=mind the S&P is still up WTD and stocks (once again) care a lot more about the volatility in other asset classes than they do the =ctual FOMC message (i.e. it appears that Fl once again was caught =latfooted and required the larger price adjustment and this transiti=n spooked stocks more than the QE schedule did). Selling wasn&#.2173 super aggressive Wed afternoon and (as has been the case for a while=now) thin liquidity played a big part in the swoon. Stepping b=ck, the S&P (looking back over the last several weeks) still =an't be accused of doing more than consolidating/digesting =it is less than 3% off the recent all time nominal high). With the=Fed now out of the way and aside from the June flash PMIs (China Wed night= US/Europe Thurs morning) the calendar will quiet down again until=the week of Jul 1 (the week of Jul 1 brings all the big June eco numbers inc. the US jobs as well as ECB/BOE meetings. Note that attend=nce/volumes will be impacted by the 7/4 US holiday this week). =OADuring the week of Jul 8, the CQ2 earnings season will kick-off (=A is Mon night 7/8) and the minutes from this 6/19 meeting hit on Wed Jul =0. Press co=f Bernan=e said the Fed is reviewing the exit policy strategies and will have more =o say in the future. However, Bernanke said a "strong majori=y" of Fed officials now agree that mortgage securities likely wonr.= 173 be sold during the process of policy normalization. =OA *Bernanke repe=ted the 6.5% UR target isn't an automatic trigger point and if infration stays tame it may be appropriate to keep ZIRP in place (i.e. ZIR= can stay if UR falls below 6.5%). &=iddot; &nb=p; Bernanke said if data stays on track the =ed would begin tapering QE later in '13 and conclude purchases by mir '14. Bernanke said by the end of QE UR would prob. be in =he vicinity of —7%. Bernanke said the Fed remains "data depe=dent" though and this QE pace is subject to change. . = Bernanke hinted he =ould adjust the UR ZIRP threshold lower. &m=ddot; &nbs=; Bernanke notes that even after QE ends the=Fed won't be reducing its balance sheet. • = Bernanke acknowledges the recen= back-up in rates and attributes it to a brighter growth outlook as well a= changing Fed expectations. Bernanke said he was a "little p=zzled" by the increase in bond yields - "it seems to be factor= beyond simply Fed expectations are at work". Bernanke was asked about =is tenure as chairman and said "I have nothing to say about my perso=al plans". =span style="font-size:10.0pt;font-family:Symbor>. = Bernanke said the country's biggest banks are at or near the Basel III capital levels already. class="MsoNormal"> Statement =OA &nb=p; The qualitative language on growth =asn't changed too much. Growth is still expanding at a moder=te pace and while the job markets have improved UR remains elevated.&nbs=; On inflation, the Fed still says that while price developments are runni=g below the long-term objective, expectations remain stable. = 2 EFTA_R1_00061256 EFTA01758392 *&n=sp; This line is bei=g taken as a small hawkish upgrade from the prior statement — "=The Committee sees the downside risks to the outlook for the economy and t=e labor market as having diminished since the fall" (the prior=language — from May 1 — "The Committee continues t= see downside risks to the economic outlook") =middot; &n=sp; Voting — George still dissented . = http://goo.gl/fRqez <http://g=o.gl/fRqez> class="MsoNormal"> Forecasts =OA • &nb=p; GDP was tweaked a bit but didnc;t change much and '14 actually tweaked higher ('13 from 2.3=2.8% to 2.3- 2.6% and '14 from 2.9-3.4% to 3-3.5%). • &=bsp; Importantly, PCE ests=didn't change a whole lot * &nb=p; In terms of voting on the first rate hike, there wasn'=t a whole lot of change. 14 people now see the first hike in-=;15 (vs. 13 prior). 3 see the first hike in '14 (vs. 4 p=eviously). =0Ahttp://goo.gl/oxbCm<=o:p> Thanks, Stacy Stacy Dubo= Global Investment Opportu=ities J.P.Morgan 320 Park =ve 14th Floor New York, NY 10022</=> T F <=div> 3 EFTA_R1_00061257 EFTA01758393 This email is confidential and subject to=important disclaimers and conditions including on offers for the purchase =r sale of securities, accuracy and completeness of information, viruses, c=nfidentiality, legal privilege, and legal entity disclaimers, available at=http://www.jpmorgan.com/pages/disclosures/email. 4 EFTA_R1_00061258 EFTA01758394