Gold holds losses from biggest dip in 5 months after Fed rate hike

23 Dec 2015 | Author: | No comments yet »

Asia markets hit as oil sinks and Fed effect wears off.

Indonesia’s rupiah, South Korea’s won and the Singapore dollar are projected to decline the most in 2016, with India’s rupee seen depreciating the least.Upbeat sentiment following the Federal Reserve’s first rate rise in nearly a decade was upended as a sell-off in commodities returned, setting the stage for broad declines in Asia.

Asian stock markets fell back on Friday after a two-day rally boosted by the Federal Reserve’s interest rate hike, as the rout in oil prices returned to centre stage, with commodity-linked shares again taking a hit.There was a rare consensus among brokers and market experts that the US Federal Reserve’s rate hike was a non-event for the Indian markets, with most saying a marginal increase had already been priced in. Japan’s Nikkei 225 and Australia’s S&P/ASX 200 each fell 0.2 per cent on Friday, while Hong Kong’s Hang Seng Index retreated 0.3 per cent and Taiwan’s Taiex fell half a per cent. Exchanges from New York and Sao Paolo to London and Tokyo cheered the Fed’s widely-expected decision Wednesday to lift borrowing costs for the first time in almost a decade, which was taken as a sign of its confidence in the world’s top economy. Federal Reserve on Wednesday indicated four interest-rate increases next year, Taiwan cut on Thursday and economists are forecasting reductions in China, South Korea, Thailand, India and Indonesia to spur growth.

In China, stocks were mixed: the blue-chip heavy Shanghai Composite added 0.1 per cent, a third straight gain, but the tech-heavy Shenzhen Composite fell 0.6 per cent, ending a four-day streak. However, while European equities extended their advance on Thursday, Wall Street’s three main markets were dragged down by energy firms as oil prices tanked again on weak demand, a torpid global economy and a strengthening dollar. China’s slowdown is hurting Asian nations with strong trade linkages to the world’s second-biggest economy, and the Aug. 11 devaluation of the yuan clouded the outlook for a currency that had been source of stability in Asia during past crises.

Global equities responded positively earlier in the week to the Fed’s landmark decision to raise its target range for the Fed funds rate by a quarter of a percentage point. Some of the names in the energy sector tumbled in US trade, including ExxonMobil, Chevron, copper and gold producer Freeport-McMoRan, and mining equipment maker Caterpillar.

While the Fed’s first hike (in a decade) was on expected lines, there is no certainty about when and how it will move with respect to subsequent hikes. The move was widely-telegraphed and Fed chair Janet Yellen said further rates would be data dependant and “gradual.” But overnight, much of the gains unravelled in the US. Those losses were mirrored in Asia, with Sydney-listed Rio Tinto down three percent and BHP Billiton falling 2.4 percent, while Hong Kong-listed PetroChina shed 2.3 percent and CNOOC gave up two percent.

As the head of research at a multinational brokerage firm points out, no one knows how the rate hike announced on Wednesday will impact the US economy. Apple fell 2.1 percent as RBC Capital Markets cut its estimates for iPhone sales in the March quarter, joining other investment banks that have highlighted the worry. Among stock markets, Tokyo was 0.2 percent lower by lunch, with investors awaiting a Bank of Japan policy meeting to see what its response will be to the US rate hike, with analysts predicting it will hold off loosening monetary policy further. Ltd, says, “In the near term, there are disappointments in terms of reforms and sluggish recovery, which could weigh on investor sentiment.” Based on its most recent fund managers’ survey, analysts at Bank of America Merrill Lynch wrote, “Global fund managers’ positioning in emerging markets remain near record lows, as they perceive the region to be a value trap with a weak earnings outlook, sharply slowing China growth and see continuing headwinds from a stronger US dollar and higher bond yields.

A recession in China remains the biggest tail risk for global investors.” Investors now think China’s growth is likely to slow to 5.5% by 2018 (down from 5.9% last month), the report added. But Shanghai — which Friday marks 25 years since its first trade — jumped 0.6 percent on data that showed new-home prices rose in November in more Chinese cities than the previous month thanks to government stimulus measures. “The major driver this week has been US dollar strength against a backdrop of ongoing refusal to respond rationally to the current market surplus on the supply side,” Michael McCarthy, a chief markets strategist at CMC Markets in Sydney, said. Indexes compiled by the Bank for International Settlements show the yuan is still the strongest among 24 emerging-market currencies in trade-weighted terms after adjusting for inflation, hurting China’s export competitiveness. “China is actually gaining some competitiveness on a trade-weighted basis” with the help from the weaker fixing, said Craig Chan, the Singapore-based head of foreign-exchange strategy for Asia ex-Japan at Nomura Holdings Inc. That exacerbated pressure on the black gold, which has plunged about 15 percent since December 4 when the OPEC oil exporters’ group decided not to put a limit on output despite a global glut and anaemic demand.

With this week’s policy tightening by the Fed already priced in, going forward Asian currencies will be more sensitive to moves in the yuan, he said. Asia’s largest economy accounts for 34.3 percent of South Korea’s total trade, according to the Japanese brokerage, followed by the Philippines at 25 percent and Thailand, Malaysia and Taiwan at about 22 percent each.

Still, if the government is able to push ahead with reforms and there is greater evidence about the economy’s recovery, investors may still well flock to Indian shores for the lack of alternatives. In China, the renminbi was on track to decline for a seventh consecutive week, after the People’s Bank of China “fixed” the currency lower for a 10th straight session.

Government leaders and policy makers the world over have begun acknowledging the importance of developing smart cities as a means to enhance the quality of life of citizens. China is likely going to favor macro-stability and the currency is part of it.” The IMF predicts growth in Asia’s developing economies will slow to 6.4 percent next year from 6.5 percent in 2015, with China’s expansion decelerating to 6.3 percent from 6.8 percent. At least 20 of the world’s largest countries are expected to introduce national smart city policies to prioritize funding and document technical and business guidelines by 2017, according to research firm International Data Corp. (IDC). Further easing is also forecast in Indonesia, Thailand and India. “This impending Fed tightening cycle is without a strong synchronized global recovery and export rebound,” said Bank of America’s Piron. “Typically this would be bullish for Asian currencies as they would appreciate as their current-account surpluses expand on improving exports. According to an analyst from research firm Frost and Sullivan, Anirudh Bhaskaran, “Big data, especially, will emerge as a more valuable delivery model owing to affordable upfront costs and lower resource usage.” Local governments’ focus on technology, policy, economy and infrastructure will lend further momentum, leading to their evolution into smart cities in the coming years, he says.

Ltd, said, “The smart city concept, clearly a confluence of IoT and big data, holds promises for more efficient management of city services, innovative energy, water and transport services, and a deeper engagement with citizens—all leading to a rejuvenation of cities with sustainable economic development and a better quality of life.” He states that smart cities are not just about smart systems and technologies; they are a combination of digital, business and civic innovation. “It is the new data platforms, business models and engagement models that are creating city-wide digital ecosystems,” he said. According to Bettina Tratz-Ryan, research vice-president, Gartner Research, commercial and industrial buildings will benefit significantly from the introduction of IoT technologies as they provide integrated management based on big data collected from sensors in the facilities. “Especially in large sites such as industrial zones, office parks, shopping malls, airports or seaports, IoT can help reduce the cost of energy, spatial management and building maintenance by up to 30%,” she said. Gartner predicts that in 2016, 90% of cities worldwide will lack a comprehensive set of policies on the public and private use of drones, sensors and devices, which will result in increased privacy and security risks. If General Motors has made a big bet on high-speed wireless connectivity throughout its vehicle fleet, luxury cars such as BMW, Mercedes and Audi are also becoming digitally enabled so that in the next few years, they become as mainstream as smartphones of today. Technology companies such as Google Inc., Hewlett-Packard Inc., and Apple Inc. are aggressively experimenting with both software and hardware, in different ways like self-driving cars and Apple CarPlay. “With more and more cars having embedded sensors and communication capabilities, car makers can design new services built around the ability of the car to interact with other vehicles and the surrounding infrastructure,” said Gaurav Bajaj, director, Audi Approved: plus, Kolkata.

A March report by McKinsey & Co., however, notes that at a time when customer data is becoming the new profit centre, consumer privacy will remain a focal point of interest for consumers themselves as well as most likely for regulators. Recognizing the need for innovation in the hybrid vehicle space, the Indian government has launched a national plan with the goal of getting 6-7 million hybrid and electric vehicles on the road by 2020. Two companies, KPIT Technologies Ltd and Bharat Forge Ltd have jointly developed hybrid kits that can convert an existing vehicle into a hybrid and have patented the technology across the world. According to Rakesh Kaul, partner, government and public services at consultancy firm PwC India, the smart cities concept is built on four pillars— physical (infrastructure), social (health, education and entertainment), institutional (municipalities and city managers) and economic (ease of doing business in India). “The initiatives should be commercially viable, socially inclusive and maintain ecological balance,” he said. Prashant Pradhan, director, smarter planet business, IBM India and South Asia explained that it will be important to measure the return on investment (RoI) in smart cities. “Where are smart cities heading?

Are they going to solve the challenges that can inhibit business growth, such as unsafe neighbourhoods, traffic congestion and a lack of workers with certain skill sets? Will the city continue to invest in areas of success like cultural events, car or bike sharing initiatives, clean parks, and resiliency plans for severe weather events?

The plan to create 100 smart cities is expected to fuel the job growth further, believe experts. “Year 2016 will bring a large number of jobs in Tier-II cities with Digital India and Smart city initiatives and industries like manufacturing which has been struggling and competing with import pricing competitiveness will now have major boost and will be the largest job creator in India,” said GlobalHunt India Pvt. He said sectors like IT, ITES, e-commerce, BFSI, logistics and transport will become support systems for the manufacturing sector and create more jobs avenues.

Here you can write a commentary on the recording "Gold holds losses from biggest dip in 5 months after Fed rate hike".

* Required fields
Twitter-news
Our partners
Follow us
Contact us
Our contacts

About this site