True to form, September volatility returns
September - start of the southern hemisphere spring. A calendar full of footy finals. And a time of seasonally high volatility in equity markets.
We’ve had two months of very calm markets following the volatility brought about by Brexit, but it seems to be on the rise again. This time fuelled by the European Central Bank's decision to stand pat on monetary policy as well as uncertainty over whether the US Federal Reserve will increase interest rates.
- 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.
Published on 14 Sep 16
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September - start of the southern hemisphere spring. A calendar full of footy finals. And a time of seasonally high volatility in equity markets.
We’ve had two months of very calm markets following the volatility brought about by Brexit, but it seems to be on the rise again. This time fuelled by the European Central Bank's decision to stand pat on monetary policy as well as uncertainty over whether the US Federal Reserve will increase interest rates.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.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
We’ve had two months of very calm markets following the volatility brought about by Brexit, but it seems to be on the rise again. This time fuelled by the European Central Bank's decision to stand pat on monetary policy as well as uncertainty over whether the US Federal Reserve will increase interest rates.
The ECB's decision to leave interest rates on hold was more or less expected. However, the ECB failed to deliver on the expectation that it would extend its asset purchase program by six months to September 2017. This prompted volatility in markets despite President Draghi stating that the ECB was "ready, willing and able to act".
What is perhaps more surprising is that the market has begun to increase the probability the US Federal Reserve will hike rates despite a run of disappointing US economic data.
This comes after the head of the Boston Federal Reserve and a voting member of the Fed's policy-setting board, warned that the US economy could overheat if rates were kept too low.
Moving from the northern hemisphere to Australia, where GDP growth was once again strong growing at 0.5%. This comes after much stronger 1% growth in Q1. With government investment helping to keep things on track, the Australian economy is on target for 3% annualised growth in 2016.
With this rate of growth, it will be difficult for the Reserve Bank of Australia to justify another cut in interest rates, at least in the next few months. The only justification they could point to is to weaken the Australian Dollar.
If stock market volatility continues for some time, foreign capital flowing into high yielding stocks could dry up, which in turn could see the Australian dollar weaken. This would really take the chance of a rate cut off the table.