Much Ado About Noth­ing

We were kept on the edge of our seats with an­tic­i­pa­tion over the ex­pected in­ter­est rate hike by the Fed in Au­gust only to learn there would be no hike. Now, all bets are on the mid-De­cem­ber meet­ing for the rate in­crease

The Playa Times Riviera Maya's English Newspaper - - Enterprise Focus - BY PAT­TIE BERRY - INTERCAM

So much ner­vous­ness and an­tic­i­pa­tion be­fore the Fed’s Septem­ber meet­ing and it was all for noth­ing. The com­mit­tee de­cided to leave the in­ter­est rate un­changed, ba­si­cally be­cause the global eco­nomic sit­u­a­tion is too frag­ile and weak, es­pe­cially in China. Ev­i­dently, they didn’t want to in­crease the risk of it all hav­ing a neg­a­tive im­pact on in­fla­tion in the US, which is much too low.

Of course, the most com­mon in­ter­pre­ta­tion of the Fed’s de­ci­sion was that things in the world are worse than pre­vi­ously be­lieved. At the same time, Fed chief Yellen as­sured ev­ery­one on two oc­ca­sions that the Fed funds rate will be in­creased be­fore the year is out.

Con­fus­ing, isn’t it? Three months hardly seems enough time for Europe, China, and other economies to re­cover. Yet, the Fed seems ready to hike rates at its meet­ing at the end of Oc­to­ber or the last one for the year in mid-De­cem­ber. Most an­a­lysts and traders are bet­ting on De­cem­ber.

The thing is; we are back where we were sev­eral weeks ago. The over­whelm­ing con­cerns for the mar­kets are still the Fed and China, and un­cer­tainty hasn’t di­min­ished one bit. Sen­ti­ment is mostly pes­simistic and, of course, high volatil­ity in all mar­kets re­mains the norm.

As we see it, with the Fed merely post­pon­ing the rate hike, mar­ket trends should not change. The dol­lar should re­main the strong­est cur­rency. The euro and the yen might not weaken much in the short term, but the trend will prob­a­bly ac­cel­er­ate the closer we get to De­cem­ber. With emerg­ing economies be­ing the fo­cus of so much con­cern, their cur­ren­cies can hardly be ex­pected to strengthen.

Bond rates fell right af­ter the Fed’s de­ci­sion, but it is only a mat­ter of time be­fore they start ris­ing again, an­tic­i­pat­ing the rate hike, es­pe­cially for short-term notes and bills.

Com­modi­ties, mainly oil, may stage a bounce now and then, but the over­all down­trend will prob­a­bly hold. It all de­pends on China’s health – the ma­jor com­mod­ity con­sumer in the world – which has shown no signs of im­prov­ing.

And stock mar­kets will prob­a­bly stay on a down­trend too. Ral­lies will surely take place, and might even be fre­quent, but un­til the global eco­nomic out­look be­gins to im­prove, it will be dif­fi­cult for prices to reach new highs.

We are back to Fed and China watch­ing and keep­ing tabs on eco­nomic in­di­ca­tors out of the U.S., Europe, Ja­pan and China.

The over­whelm­ing con­cerns for the mar­kets are still the Fed and China, and un­cer­tain­ty­hasn’tdi­min­ished one bit. Sen­ti­ment is mostly pes­simistic and, of course, high volatil­ity in all mar­kets re­mains the norm.

At Intercam, we are in­ter­ested in re­ceiv­ing your feed­back on our ar­ti­cles. Con­tact us

at ft­fer­nan­dez@intercam.com.mx

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