How did US trade data shift Fed tapering expectations in 2013?

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US Trade Data Narrowing Fuels Fed Tapering Concerns

Stronger-than-anticipated US trade data released in June 2013, indicating a narrowing of the trade deficit to its lowest point since October 2009, triggered significant concern among investors regarding the Federal Reserve's potential to reduce its economic stimulus measures within the year. This development directly influenced market sentiment, leading to a notable decline in equity markets as the implications for the Fed's US$85 billion in monthly bond purchases were assessed.
Reduced Trade Deficit Exceeds Forecasts

The US Commerce Department reported that the nation's trade deficit decreased more than economists had projected in June. This improvement, reaching its most narrow level since October 2009, was interpreted as a sign of economic strengthening. The data indicated a positive shift in the balance of trade, contributing to the broader narrative of a recovering US economy.
Market Reaction to Stronger Data

In response to the robust trade figures, the S&P 500 experienced its most significant drop since June 24. Investors began to price in the possibility that the improved economic indicators might prompt the Federal Reserve to initiate a reduction in its quantitative easing program, specifically the US$85 billion in monthly asset purchases. This heightened anticipation of a policy shift led to increased market volatility.
Fed Official Acknowledges Tapering Possibility

Adding to the market's unease, Charles Evans, the President of the Federal Reserve Bank of Chicago, stated that he "would clearly not rule out" a decision to commence scaling back the bond purchases as early as September. Evans, typically a proponent of continued monetary accommodation, acknowledged the potential for a policy adjustment based on evolving economic conditions, further solidifying concerns about an imminent tapering of stimulus.

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How did US trade data shift Fed tapering expectations in 2013?

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