Tag Archives: Rates

Right or wrong, further central bank rate cuts still on the cards

Just over a year ago the Chinese central bank’s seemingly innocuous 2% devaluation of the renminbi versus the dollar sent global equity markets and emerging market currencies into a tailspin, with the threat of a rarely-defined “hard landing” in Chinese economic growth grabbing the headlines. Global risk appetite once again fell off a cliff four months later as markets fretted over the possible end of ultra-loose US monetary policy after the Federal Reserve had the audacity of suggesting that more hikes could follow its first-hike-in-a-decade.

It is somewhat pointless to debate whether markets were “right” or “wrong” to react to these events as prices are simply the by-product of supply and demand and can remain “right” or “wrong” for long periods of time (put differently markets are neither right or wrong, they just are). But it is fair to say that between August 2015 and March 2016 markets were particularly sensitive to any “negative” news from the US and China, be it weaker than expected data points or a suspect policy announcement.

Fast forward twelve months and markets have swung to the other extreme, desensitized to “bad” news and happy to amplify any “good” news. Global equities are up, volatility has collapsed, bond prices have surged and EM currency rallies have extended. The lack of volatility in currency, equity and bond markets, which I highlighted in It’s oh so quiet…for now (14 June 2016), was only briefly interrupted by the Brexit vote, terrorist attacks in mainland Europe and an attempted coup in Turkey. There are some tangible explanations for this. Read more

Survey: Fed to lead Bank of England into slow and gradual rate hikes

The over-riding consensus amongst portfolio managers, analysts and finance specialists surveyed is that the US Federal Reserve will start hiking its policy rate before the Bank of England (BoE).

Respondents are less confident about the exact timing of the start of the Fed and in particular BoE hikes. The consensus forecast is for the Fed to pull the trigger in September but for the BoE to wait till Q1 2016. There is an overwhelming view that the rate hiking cycles will be slow and gradual, particularly in the UK, with the Fed and BoE expected to hike rates by only 96bps and 67bps, respectively, between now and end-2016. Read more