News & Articles Three factors dampening Malaysian and global markets
Three factors dampening Malaysian and global markets
15 Jun 2016
PETALING JAYA: Three factors have been weighing on the global capital markets in recent months – the direction of US interest rates, the Brexit referendum and the concerns over China’s debt problems.
While Britain’s June 23 referendum on whether to stay or leave the European Union (EU) will take centre stage this week, markets will also be attuned to news flows from the June 14-15 US Federal Reserve meeting. Based on the latest FedWatch data derived from the 30-day federal fund futures prices published by CME Group Inc, the odds of a rate hike this month has come down to 2%, from as high as 36% in mid-May. The latest FedWatch also point to the probability for a hike in July at 21%, from more than 60% in late May.
The probability of a mid-year rate hike has steadily fallen since the publication on June 3 of US jobs data that showed weaker-than-expected employment numbers in May. From hawkish previously, US policymakers have become more cautious, with analysts predicting the higher possibility of a September hike.
Notably, Fed chairman Janet Yellen has not hinted at a timeline for a hike except to say that it would happen “in the coming months” while several of her colleagues have cited Brexit as a concern. Investors have also turned to safe-haven assets as a result of the uncertainties over the Brexit referendum, with latest polls suggesting Britons would vote to leave rather than remain in the EU.
This caution has shown up in the benchmark US Treasury 10-year yield, which declined to 1.616% on June 13 from as high as 1.89% in intra-day trade at the end of May. The rise in US bond prices means the greenback has also strengthened and any policy decision would have to take that into consideration. Bond prices and yields have an inverse relationship.
A US rate hike would have more consequences for commodity prices as well as emerging-market assets because funds looking for more liquid assets with a higher yield in a stable political environment would flow back to US capital markets.
The ringgit, for one, has seen volatile trading. Since April 20, the US dollar has strengthened by 6.21% as at yesterday’s close of 4.10. Asian markets opened weaker and remained down at the end of the trading day while European markets opened lower.
US policymakers have said before that any hike would be dependent on economic data.
Following the disappointing May jobs data, a number of analysts see the Fed looking for an improvement in two more jobs data releases before raising the benchmark federal funds rate, which was raised in December to between 0.25% and 0.50% after having stayed at near zero for seven years.
Because the expectations of a US rate hike has receded, policymakers would now have to balance US private consumption growth and rise in wages against a weakening economic growth backdrop for the US and global economies when they make their decision. Moody’s Investors Service recently revised the growth forecast for the US economy to 2% from 2.3% while the International Monetary Fund had revised global growth 0.2% lower to 3.2% in the April update of the World Economic Outlook.
While Britain’s June 23 referendum on whether to stay or leave the European Union (EU) will take centre stage this week, markets will also be attuned to news flows from the June 14-15 US Federal Reserve meeting. Based on the latest FedWatch data derived from the 30-day federal fund futures prices published by CME Group Inc, the odds of a rate hike this month has come down to 2%, from as high as 36% in mid-May. The latest FedWatch also point to the probability for a hike in July at 21%, from more than 60% in late May.
The probability of a mid-year rate hike has steadily fallen since the publication on June 3 of US jobs data that showed weaker-than-expected employment numbers in May. From hawkish previously, US policymakers have become more cautious, with analysts predicting the higher possibility of a September hike.
Notably, Fed chairman Janet Yellen has not hinted at a timeline for a hike except to say that it would happen “in the coming months” while several of her colleagues have cited Brexit as a concern. Investors have also turned to safe-haven assets as a result of the uncertainties over the Brexit referendum, with latest polls suggesting Britons would vote to leave rather than remain in the EU.
This caution has shown up in the benchmark US Treasury 10-year yield, which declined to 1.616% on June 13 from as high as 1.89% in intra-day trade at the end of May. The rise in US bond prices means the greenback has also strengthened and any policy decision would have to take that into consideration. Bond prices and yields have an inverse relationship.
A US rate hike would have more consequences for commodity prices as well as emerging-market assets because funds looking for more liquid assets with a higher yield in a stable political environment would flow back to US capital markets.
The ringgit, for one, has seen volatile trading. Since April 20, the US dollar has strengthened by 6.21% as at yesterday’s close of 4.10. Asian markets opened weaker and remained down at the end of the trading day while European markets opened lower.
US policymakers have said before that any hike would be dependent on economic data.
Following the disappointing May jobs data, a number of analysts see the Fed looking for an improvement in two more jobs data releases before raising the benchmark federal funds rate, which was raised in December to between 0.25% and 0.50% after having stayed at near zero for seven years.
Because the expectations of a US rate hike has receded, policymakers would now have to balance US private consumption growth and rise in wages against a weakening economic growth backdrop for the US and global economies when they make their decision. Moody’s Investors Service recently revised the growth forecast for the US economy to 2% from 2.3% while the International Monetary Fund had revised global growth 0.2% lower to 3.2% in the April update of the World Economic Outlook.
Source: Thestar.com.my