Fed holds rates, upsets markets
Chair of the US Federal Reserve, Janet Yellen, has sought to calm markets by saying a US rate rise is likely to happen this year. Her comments come after the Fed kept rates steady at its September meeting, which added to the volatility we are currently experiencing in the market.
Many may have thought steady rates would be good news for global markets, but not so. The Fed's failure to raise rates reinforces investor concerns about the health of the world economy, particularly China.
If the Fed really wanted to alleviate concerns, it should have hiked rates at their meeting.
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Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 30 Sep 15
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Chair of the US Federal Reserve, Janet Yellen, has sought to calm markets by saying a US rate rise is likely to happen this year. Her comments come after the Fed kept rates steady at its September meeting, which added to the volatility we are currently experiencing in the market.
Many may have thought steady rates would be good news for global markets, but not so. The Fed's failure to raise rates reinforces investor concerns about the health of the world economy, particularly China.
If the Fed really wanted to alleviate concerns, it should have hiked rates at their meeting.Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
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Many may have thought steady rates would be good news for global markets, but not so. The Fed's failure to raise rates reinforces investor concerns about the health of the world economy, particularly China.
If the Fed really wanted to alleviate concerns, it should have hiked rates at their meeting.
The US is experiencing strong growth and strong employment. So much so, second quarter growth was revised up to 3.9 per cent and the next employment report is expected to show gains of around 200,000. It begs the question why interest rates are at zero and what needs to happen for the Fed to raise rates.
Firstly, volatility in the market will need to reduce. And secondly, we’ll need to see signs that Chinese growth has stabilised.
Of course this creates a catch 22 situation because the Fed not raising rates adds to market uncertainty.
Against this backdrop, China’s flash PMI falling in September didn’t help.
The drop in the PMI was mostly driven by declines in output and new orders. However, the recent weakness does not correspond to a fall in broader economic activity including the services sector. So in my humble opinion it’s not pointing to a deepening economic crisis.
Looking elsewhere, PMIs for the major economies do not paint a picture of increasing global growth. We also see that global exports are being hit which is hurting export orientated countries like Japan, Germany and China.
However, we do need to remember that PMIs only reflect what is happening in the manufacturing sector despite the services sectors in these economies now being much larger.
Also just when you thought it was safe to go back into the water, markets will be watching the US this week where there is the possibility of another US Federal government shut-down.
Overall, it’s too hard to make a call at the moment. We would advise caution on bargain hunting while the uncertainties remain.