Markets in turmoil over rate rise fear
Era of cheap money is over, senior bankers warn
AN eRA of rock-bottom interest rates is coming to an end, senior bankers warned last night.
Barclays boss Jes Staley and JP Morgan chief executive Jamie Dimon said that the rush to a rate rise in the US was gathering pace.
The comments, from two of the most influential bankers in the world, came as stock markets across the globe had a rocky ride as first Asia and then the FTSe 100 sank. The blue-chip index lost £19.5bn of its value to close down 1.12pc, having recovered from steeper falls earlier in the day.
Prices on the Continent were hit harder, with the Dax shedding 1.51pc and euronext 1.45pc lower.
Last night the Dow Jones and S&P 500 edged in to positive territory as a banker at the US Federal Reserve sought to calm the market sell-off.
US Federal Reserve policymaker Lael Brainard said the jobs market still needed to strengthen and ‘the case to tighten policy preemptively is less compelling’.
It was the last scheduled speech from a Fed official before the interest rate setting committee meets next week. Banks are likely to be the biggest beneficiaries of a rise, which would allow them to charge borrowers more.
Dimon said a US rate rise of 0.25pc would be ‘a drop in the bucket’. ‘Let’s just raise rates,’ he told the economic Club in Washington.
Staley was less forthright but still argued a change would come. In a CNBC interview he said: ‘everyone needs to have their eyes wide open. We will ultimately have to come out of the 0pc and negative interest rate environment.’
Many traders believe a rise in rates will drive share prices lower as the market gets used to living without cheap borrowing costs.
Until now, interest rates in developed economies have moved in step since the dawn of the financial crisis. But this consensus will be shattered if the Fed hikes rates – with America headed back towards normality while the Bank of england maintains a historic 0.25pc low, which is unlikely to rise soon. Meanwhile, the eurozone and Japan are stuck in the socalled Alice in Wonderland world of negative interest.
This divergence will be a fresh step into the unknown.
IG market analyst Joshua Mahony said: ‘US stock markets have managed to regain their composure.
‘What has been widely heralded as a result of hawkish comments from the Fed’s [eric S.] Rosengren seems to have had as much to do with the implications of finally breaking out of a two-month lull in US indices.’
Markets were also rattled by the collapse of US presidential candidate hillary Clinton at a 9/11 memorial service on Sunday. Investors fear that revelations that Democratic candidate Clinton was suffering from pneumonia would hand the advantage to her Republican rival Donald Trump.
It is widely assumed that a Trump victory would be disastrous for big business, global trade and even world peace.
Trump himself weighed in on the stock market debate yesterday, claiming that savers were ‘getting creamed’ by low rates.
he said Fed chairman Janet Yellen was keeping them low to make President Barack Obama more popular – although the body denies being political.