JSE set to suffer from hawkish US Fed

22 December, 2018, 10:29 | Author: Kevin Carter
  • A screen displays the headlines that the US Federal Reserve raised interest rates as a trader works at a post on the floor of the New York Stock Exchange

But Powell has been consistent over his first year as chairman that even though he spent much of his career in and around financial markets, he would not respond to their daily whims.

The technology-heavy Nasdaq is now down nearly 20 per cent from the peak it reached in August.

The market swoon is coming even as the USA economy is on track to expand this year at the fastest pace in 13 years.

Despite the increased volatility and declines in the financial markets, Spika said long-term investors should focus on their objectives and goals and not on the cyclical performance of the market.

During their final policy meeting of 2018 this week, Federal Reserve officials voted unanimously to continue the central bank's pace of gradual interest rate increases.

WASHINGTON, D.C.: The US Federal Reserve raised the benchmark interest rate on Wednesday, staking its independence despite repeated attacks by President Donald Trump, but it also sent a clear signal it expects to take it slow next year in the face of plateauing growth. "The Fed needs to be paying attention to what's going on".

Of course there were many who criticised the Fed for not raising interest rates fast enough in the past two years. But things are less certain now, and the market hates uncertainty.

Urging the market to "put this into perspective", Mnuchin said investors should realize that there is a "big dispersion" among the Fed officials, and the Fed is "data dependent".

Investors have become increasingly anxious about the economic outlook.

A rise in short-term interest rates and a fall in the long-date yield rekindled worries of an inversion in the yield curve, where shorter-debt yields become higher than longer-term ones. That's generally good for the economy.

Bond prices were mixed.

The S&P 500 index lost 1.6 percent to 2,467.42. The Dow fell 464.06 points, or 2 percent, to 22,859.60 after sinking as much as 679.

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The Nasdaq fell 1.6 percent to 6,528.41. Brent crude, the standard for worldwide oil prices, fell 1.3 percent to $53.67 a barrel in London. "Markets are being a little bit disconnected with the economy", he said. The major US indexes have fallen more than 11 percent in December, and without a substantial gain over the final days of trading, they are headed for their single worst month since October 2008, when the market was being battered by the global financial crisis.

The Shanghai composite index was down one per cent at the close of the ASX.

The possibility of a partial shutdown of the federal government also loomed over the market on Thursday, as funding for the government runs out at midnight Friday.

The fundamental matter right now for markets is the emergence of a major split between what the US Fed is saying about its expectations for the US economy, and the expectations market participants have implied in pricing.

Fed officials expected the US economy to grow at 3 percent this year, a little bit lower than 3.1 percent estimated in September, according to the Fed's latest economic projections released on Wednesday. Brent crude, the standard for worldwide oil prices, fell 1 percent to $53.82 a barrel in London. They're trading at their lowest levels since early 2016. The yields have fallen from a seven-year high of 3.261 percent on October 9.

Fed funds futures are now pricing in only about 50 per cent chance of one rate hike. Bank of Japan Governor Haruhiko Kuroda said in a press conference Thursday that there was no problem if yields fell into negative territory, suggesting he has no plan to intensify the central bank's tapering of asset purchases.

In France, the CAC 40 lost 1.8 percent and Germany's DAX fell 1.4 percent.

All of those indexes have taken steep losses this year. The euro rose to $1.1469 from $1.1368.

Materials sector recorded gains, with BHP rising 1%.

Spot gold was trading at $1,255.08 per ounce by 1312 GMT, having reached $1,258.03 in the previous session, its highest level since July 10.

Other fuel prices also fell. Oil Search and Woodside were between 0.7 and 1% weaker. The Italian FTSE MIB jumped 1.6 percent.

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