The initial response in the minutes and hours following yesterday’s $10 billion cutback to the Fed’s QE3 program to $75 million per month, was a big rally in equity markets. As time has progressed, however, the larger impact has been in currency markets. US indices shot up to retest their all-time highs on the news but have stalled overnight, and now appear to be forming double tops in the Dow and S&P. The quick burst of euphoria after a series of declines last week is more commonly seen in bear markets than bull markets and suggests yesterday’s rally may have been more short covering than renewed bullishness. While we may see some optimism heading into the new year the prospects of more tapering and less money coming into the stock market may create significant headwinds for stocks as we move deeper into 2014. The one big question left now is whether yesterday’s tapering was a one-time move, or the start of a series of regular cutbacks to QE. The next meeting at the end of January features the changeover in leadership and is set for just before the next debt ceiling deadline, so the Fed may hold off at that one, but if the economy holds up more tapering moves appear to be on the way. Considering that the last two QE programs with global stock markets falling by over 10% within three months of the Fed stopping purchases cold turkey, the Central bank may be more inclined this time to taper regularly over the next year as stop-start tapering may create more uncertainty. Today’s action in currency markets suggests that traders believe tapering is here to stay and that a general trend away from the easy money of the last few years may be getting underway. USD has rallied on the tapering news against pretty much anything with only GBP able to hold its ground as traders anticipate some form of tightening in the UK in the coming months as employment improves. Defensive havens have been hit the hardest by the tapering news. Seeing tapering as a sign of strength, traders have been moving capital out of havens and back into risk markets, not just stocks but also commodities. JPY and CHF have been hit the hardest on the news, but EUR has also dropped back with ECB interest rates low and LTRO tapering well underway. Gold and silver have been knocked down to test $1,200 and $19.20 respectively, where they have been finding some support. A successful test of their spring lows would suggest that tapering has already been priced in and could put double bottoms in place. Breakdowns, however, would indicate that their bear market continues. Global markets may remain active through the rest of the week as traders continue to react of yesterday’s news and position for the holidays. A flurry of mid-morning US news releases may also spark some trading interest. Economic News Significant economic announcements released yesterday afternoon and overnight include: US jobless claims 379K vs street 335K UK retail sales 2 0% vs street 2.2% vs previous 1.8% NZ GDP 3.5% street 3.4% vs previous 2.5% US interest rate 0.25% no change expected QE3 total purchases $75 billion per month cut from $85 billion FOMC member projections 2013 GDP raised to 2.2-2.3% from 2.0-2.3% 2014 GDP widened to 2.8-3.2% from 2.9-3.1% 2013 unemployment rate lowered to 7.0-7.1% from 7.1-7.3% 2014 unemployment rate lowered to 6.3-6.6% from 6.4-6.8% 2013 PCE inflation lowered to 0.9-1.0% from 1.1-1.2% 2014 PCE inflation 1.4-1.6% vs previous 1.3-1.8% FOMC member guesses on first rate increase 2014 2 2015 12 2016 3 Economic reports due later today include: 10:00 am EST US Philly Fed street 10.0 vs previous 6.5 10:00 am EST US existing home sales street 5.02M 10:00 am EST US leading indicator street 0.7% 10:30 am EST US natural gas street (264 BCF)

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.