Interest Rates Rose; Expect The Dollar To Drop

23 Dec 2015 | Author: | No comments yet »

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

The Federal Reserve’s decision to raise its key interest rate on Wednesday could hurt the Democratic Party’s chances of winning the presidency in 2016 by beginning a process that will slow down the economy. “The significant variable is not the rate hikes, but their effect on the strength of the economy,” said Larry Sabato, director of the center for politics at the University of Virginia. 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.By raising US interest rates for the first time since 2006, the central bank has bolstered the value of the dollar, the currency used around the world to buy and sell most raw materials.

History has shown that Americans are more likely to vote for the incumbent party in a presidential election if they think that the sitting president is doing a good job. 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.

Even with global surpluses and slowing economies keeping prices low for everything from crude oil to wheat, demand may weaken, especially from major importers in Asia, such as China and India, that have been key drivers of commodity buying. “The currency movement due to the US rate increase will have a direct impact on our business,” said Kazuo Kagami, the president of Toho Titanium, which makes a lightweight, super-strong alloy used in everything from airplane parts to golf clubs. A number of factors can contribute to public opinions of a president, including terror attacks and scandals, but the performance of the economy is near the top of the list. 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. All sorts of raw materials have global surpluses after heavy investment in new production over the past decade boosted supplies, which began arriving just as demand slowed.

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.

The Bank of Japan said it would buy another ¥300 billion ($2.45 billion) of exchange-traded equity funds, in addition to the ¥3 trillion in ETFs it has purchased annually since late 2014. 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. His candidacy foundered after Lehman Brothers collapsed in September 2008, marking the onset of the most devastating financial crisis since the Great Depression. 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.

The Pew Research Center notes that “what had essentially been a deadlocked contest between McCain and Obama before the Lehman meltdown turned into a solid lead for Obama in the weeks that followed.” Even media coverage of McCain started becoming more negative. 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.

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. House of Representatives from 2003 to 2013 and is now a financial regulatory policy analyst at the Roosevelt Institute, describes witnessing that dynamic over the course of his career. “People vote on the economy along the lines that you should always change a losing game and not a winning game — just do something different if it is not working,” Miller said. Brad Miller, former congressman But whether the Fed will raise the influential federal funds rate enough to tip the scales against Hillary Clinton or Bernie Sanders, the two leading Democratic presidential hopefuls, depends a lot on what the Fed does next — or how accurate Fed officials’ predictions prove to be.

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. Even critics of Wednesday’s decision conceded that the initial quarter-percentage-point increase will not in itself put major downward pressure on economic growth. 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).

Ultralow interest rates have boosted equity markets in recent years. “It’s a delicate balance” that the Fed faces in the coming months in pacing subsequent interest rate increases, said Andrew Swan, head of Asian equities at BlackRock Inc. 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. The Fed’s top officials, including most of the members of the committee charged with adjusting interest rates, believe that the economy will grow enough to begin accelerating inflation in the meantime to a degree that will justify the rate increases and offset the effects of gradual rate hikes. 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.

Ari Rabin-Havt, former Democratic presidential campaign strategist Another thing Bernstein said he finds reassuring is the Fed’s tendency to avoid raising rates too close to an election so as not to cast aspersions on its political independence. “You certainly don’t want Janet Yellen helping Donald Trump — or otherwise playing a role in the election — and they don’t want that either,” he noted. 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.

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