Prepare for 'triple taper tantrum' in 2016, says Morgan Stanley

Thu May 7, 2015 1:37pm EDT
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By Jamie McGeever

LONDON (Reuters) - Investors spooked by the "taper tantrum" of 2013, when global markets took fright at the U.S. Federal Reserve's first hint that it might taper its monetary expansion policy, take note: 2016 could be the year of the "triple taper tantrum".

That's the prediction of analysts at Morgan Stanley, who argue that the Fed, European Central Bank and Bank of Japan might all taper their super-loose monetary policies next year if growth and inflation across the three regions pick up enough.

The world's three biggest central banks are at different stages of post-crisis management, so it's a bold call. But it shows just how much markets have turned since the start of the year, when deflation was their worst fear.

"What is unknown is whether the economic situation will pan out as we see it," said Manoj Pradhan, global economist at Morgan Stanley in London and co-author of the report. "We've had a few surprises recently, but the trajectory of monetary policy and growth is leading in that direction."

The Fed has stopped its bond-buying program and its next move will almost certainly be a rate increase. The ECB has just begun a 1 trillion-euro quantitative easing program, which is set to run to September 2016. The BOJ's QE program has paused but could resume at any stage.

If growth and inflation pick up in the euro zone and Japan, however, the ECB and BOJ will not need to provide further monetary stimulus.

Pradhan says the "triple taper tantrum" is likely to pan out as follows: The Fed divests its mortgage-backed securities portfolio in the first half of 2016 and both the ECB and BOJ run down their QE programs in the second half of 2016.

"None of these are yet on investor screens in a manner that affects their investment decisions, if our conversations are anything to go by," Pradhan said.   Continued...

The corporate logo of financial firm Morgan Stanley is pictured on the company's world headquarters in the Manhattan borough of New York City, January 20, 2015.   REUTERS/Mike Segar