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

23 Dec 2015 | Author: | No comments yet »

Calm Acceptance as Fed Enacts Its First Interest Increase in Seven Years.

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. WASHINGTON — The Federal Reserve’s much-anticipated “liftoff,” its first interest rate increase since the financial crisis, unfolded as quietly and smoothly as Fed officials could possibly have wished.

Federal Reserve chairman Janet Yellen speaks during a news conference in Washington, Wednesday, following an announcement the Federal Reserve raised its key interest rate by a quarter-point, heralding higher lending rates in an economy much sturdier than the one the Fed helped rescue in 2008. The long-expected but modest increase in the federal funds rate also boosted the dollar to a fresh two-week high against a basket of major currencies, while Wall Street snapped a three-day rally. Australia’s S&P/ASX 200 is down 1.4 per cent within the first half-hour of trade, while futures tip Japan’s Nikkei to climb 0.2 per cent and for Hong Kong’s Hang Seng to slide 0.1 per cent.

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 unanimous decision of Fed policymakers to raise interest rates for the first time in almost a decade, however, comes at a time of feverish debate in the US presidential race when the loudest candidates are winning over everyday Americans who feel left behind by the recovery. She added that policymakers were hoping for a slow rise in rates but one that will keep the Fed ahead of the curve as the economic recovery continues. “To keep the economy moving along the growth path it is on … we would like to avoid a situation where we have left so much (monetary) accommodation in place for so long we have to tighten abruptly.” New economic projections from Fed policymakers were largely unchanged from September, with unemployment anticipated to fall to 4.7 percent next year and economic growth hitting 2.4 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. Rates are being increased when there is still severe economic inequality, a lightning-rod political issue that has drawn the same kind of support to Donald Trump on the right and Bernie Sanders on the left.

Brent and U.S. crude oil prices fell and remained near multi-year lows after fresh supply builds at the delivery point for U.S. crude futures added to worries about a global glut and strength in the dollar. The Fed statement and its promise of a gradual path represented a compromise between policymakers who have been ready to raise rates for months and those who feel the economy is still at risk from weak inflation and slow global growth. “The Fed is going out of its way to assure markets that, by embarking on a ‘gradual’ path, this will not be your traditional interest rate cycle,” said Mohamed El-Erian, chief economic advisor at Allianz. The Fed said on Wednesday that it would raise its benchmark interest rate to a range of 0.25 to 0.5 percent, ending a seven-year period of near-zero interest rates. Lower oil prices again weighed upon Wall Street, with Brent crude, the international benchmark, settling 0.9 per cent weaker at $37.06 a barrel after trading as low as $36.81 and reapproaching Monday’s seven-year low of $36.33. 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.

Fed officials believed the “wealth effect” from quantitative easing would benefit the broader economy – akin to the Republican premise of trickle-down economics – by allowing people with more valuable assets to spend more. The Dow Jones industrial average .DJI fell 252.98 points, or 1.43 percent, to 17,496.11, the S&P 500 .SPX lost 31.16 points, or 1.5 percent, to 2,041.91 and the Nasdaq Composite .IXIC dropped 68.58 points, or 1.35 percent, to 5,002.55. 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. The Fed is raising short-term rates in a new way, by paying banks and other financial firms not to offer loans at rates below the bottom of its benchmark range. MSCI’s all-country world index .MIWD00000PUS lost 0.7 percent, even as the pan-European FTSEurofirst 300 .FTEU3 index jumped 1.3 percent to close at 1,434.48.

The 20 richest Americans have amassed a fortune that is larger than all the wealth of the least wealthy half of the population, 152 million people, according to a recent study by the Institute for Policy Studies, with the biggest income gains coming in the last six years. On Thursday, however, firms offered only $105 billion to the Fed — less than the $114 billion average daily sum offered to the Fed during testing over the last two years. Almost 50 per cent of US aggregate income went to upper-income households in 2014, up from 29 per cent in 1970, Pew Research said in a report last week showing a hollowing-out of America’s middle class. Yellen, the Fed’s chairwoman, emphasized that the central bank planned to move gradually, a term she has previously suggested means that the Fed will raise rates by about one percentage point per year. However, yields on the benchmark 10-year Treasury notes US10YT=RR fell to 2.2322 percent, up 16/32 in price as investors turned their attention to timing of the next hike.

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. Banks and credit unions may decide to keep interest rates on savings low while cranking up rates on mortgages and other consumer loans, using the higher rates to recover fees and boost profits.

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. Wage growth has barely moved (rising at around 2 per cent per annum and a lot more slowly than the 3.5 per cent rate the Fed considers healthy) and employment of prime-age working people between 25 and 54 remains remains below pre-recession levels.

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). Alternatively, low rates are necessary to preserve the modest pace of economic growth, and increasing them too abruptly could push the economy into recession.

The Fed’s preferred measure of inflation — an index of personal consumption that excludes volatile food and oil prices — rose just 1.3 percent in the 12 months ending in October. That’s their first job and their second job is to achieve full employment,” said Carl Weinberg, chief economist at High Frequency Economics. “With that dual mandate, that’s really all they can hope to achieve, and somebody else is going to have to come up with policies to address income inequality and broadening the reach of the economy.” If, after January 2017, that “somebody else” is one of the Republicans leading the party’s race to the White House, the Fed can expect major changes. 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. Some of the party’s candidates want it to be less independent and to ignore unemployment when it sets interest rates. “The money as it’s created through quantitative easing or other means tends to start out in the big banks in New York,” he said in November. “And because we’re now paying interest for them to keep the money there, much of that money has not filtered out into the economy.” Texas Senator Ted Cruz, who is second in the Republican presidential polls, wants the Fed to get back to a “rules-based monetary system, not with a bunch of philosopher-kings deciding”.

Yellen and other officials have argued that temporary pressures like the fall of oil prices and the strength of the dollar are suppressing inflation, and that the strength of the labor market is a more important indicator. The political-kings must choose more urgent action to correct rising inequality, an unintended consequence of nine years of emergency measures by the Fed, and coronation time is less than a year away. 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.

Levin, a professor of economics at Dartmouth, said that change was important because the Fed’s forecasts had been “persistently mistaken” in recent years. “It will be helpful for policy makers to explain what sorts of inflation readings over coming months would make them comfortable,” said Mr. 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. The report said banks struggling to hit profit targets were loosening underwriting standards, particularly in high-growth areas like auto and construction lending. “In the area of credit risk, the warning lights are flashing yellow,” Thomas J. 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. Jeremy Stein, a former Fed governor who has returned to teaching at Harvard, has observed that higher rates have the virtue of addressing even unknown problems.

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?

Banks were quick to take advantage of the Fed’s announcement on Wednesday to raise the rates they charge on many loans but not the rates that they pay to depositors. 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. Yellen, asked about that on Wednesday, suggested she did not see great reason for concern. “We have a far more resilient financial system now,” she said, “than we had prior to the financial crisis.”

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 "PRECIOUS-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