Interest Rates
US:Interest Rates could rise as soon as December, the Federal Reserve has said, as the central bank becomes less concerned over turmoil in emerging markets.The Federal Open Market Committee’s (FOMC) decided to keep current ultra low interest rates (0 – 0.25 of 1%) unchanged at yesterday’s October meeting.This decision was as the markets expected but still supports risk / equity assets which have performed well across the globe over the last fortnight.
Europe:Chairman of the ECB, Mario Draghi made significant comments that if the slowdown in emerging markets threatened the Eurozone recovery the central bank would take further action and extend the 1.1 trillion euro quantitative easing program and cut interest rates if needed. At the moment the ECB buys 60 Billion Euros of government bonds per month, so expanding the money supply, and has pledged to do this until at least September 2016.
Fixed Income
Short-term interest rates / yields are moving further into negative territory i.e. negative rates of return, as the market prices in an interest cut by the European Central Bank (ECB). The Swiss 10 year bond hit another record low yield of -0.30% i.e. an investor receives a negative return on a 10 year investment. Why would anyone do this? An investor’s primary objective for doing this is ‘safety of capital’ in a turbulent financial world with significant falls and volatility in most financial markets so far this year. Swiss bonds are one of the world’s safest investments. Other European bond markets e.g. Germany and France are also showing negative yields on short term debt right now. Additionally, for the first time, the Italian government issued 2-year debt is trading with a negative yield.
Equity Markets
Markets have generally rallied around the world in the last fortnight as fears of a Chinese economic slowdown have subsided to a degree (see below) coupled with the friendly interest rate noises coming out of the ECB as described. This scenario is supported by the US Federal Reserve in no rush to raise interest rates either.
Foreign Exchange
The Euro has weakened versus the dollar on the prospect of lower European interest rates. The US Dollar is close to its 12 year high versus the Euro.
Commodities
The global oil industry has been reeling from low prices this year caused by oversupply. The Organisation of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, has refused to cut back production as it battles shale gas producers in the US. This year has been an absolute bloodbath for commodity markets in general with the prices of just about every tradeable material on the planet, from gold, aluminium, and platinum to iron ore, copper, and even soybeans, tumbling amid a perfect storm of factors including weaker demand from China and market fears of an end to an era of cheap money.
Predictably, it’s the oil price that is having the most dramatic effect .The fall, from the high of more than US$ 110 to as low as US$ 43 a barrel, is wrecking havoc across the energy industry, forcing the oil majors to dramatically rein costs in at lightning speed as producers desperately attempt to shore up profits.
China
With Chinese economic growth being a dominant influence on world financial markets right now, markets were somewhat relieved to see Chinese Q3 2015 GDP released showing the economy grew by 6.9% compared with same period last year. The Shanghai Composite equity index was further boosted when the People’s Bank of China (the Chinese central bank) announced another cut to interest rates i.e.reduced by 0.25% to 4.6%, the sixth reduction since November. Investors are encouraged the central bank will take the necessary steps to support the economy and the market as required.
Equities
S&P 500: 2070
Nasdaq: 5030
FTSE 100: 6450
Bonds – 10 Year Government Yields
US 2.10%
EU 0.50%
GB 1.85%
Foreign Exchange
USD/EUR 1.1100 (1 euro buys 1.1100 dollars)
GBP/USD 1.5300 (1 pound buys 1.5300 dollars)
Commodities
OIL: Brent: 48.00 (dollars per barrel)
GOLD: 1160 (dollars per ounce)
Receive fortnightly Market Update notifications by ‘Following’ Opening City Doors on LinkedIn
https://www.linkedin.com/company/opening-city-doors
Paul McCormick
