BIS warns of central bank overburdening
It is not every day that the Bank of International Settlements warns that confidence in central bank omnipotence has begun to falter, but when it does it is worth a read.
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It is not every day that the Bank of International Settlements warns that confidence in central bank omnipotence has begun to falter, but when it does it is worth a read.
The Swedish central bank’s surprise announcement that it has pushed interest rates further into negative territory is the latest piece in what is an increasingly worrying puzzle.
About the right amount of ‘dovishness’ seems to be the initial verdict from market commentators pronouncing on what had been billed as the biggest event in financial markets since the collapse of Lehman Brothers.
This Wednesday, investors’ eyes are once again on the Fed, which is widely expected to deliver its first rate hike since 2006. Across Europe, fund selectors have been impatiently waiting for this for months. There is one exception though: investors in Scandinavia prefer the FOMC to defer a first rate hike to next year.
There appears no way back now that Janet Yellen and her Federal Reserve colleagues have all but committed to raising rates on 16 December, and a quarter point rise is largely priced into markets already.
Just like all their European counterparts, apart from the dovish Swedes and Danes, Finland’s fund buyers want to see a US rate hike sooner rather than later. But what does that mean for emerging markets, one of their favourite places to invest at the moment?
A rate rise by the Fed is long overdue, fund selectors in the Netherlands believe. Fund managers attending the Expert Investor Netherlands conference agreed and fiercely criticised the central bank for its alleged ‘backward guidance’.
Both fund selectors and fund managers have been bearish about US equities for quite a while, against a backdrop of the Fed planning to raise rates, possibly as early as this week. Now, Joachim Klement, chief investment officer of the Swiss fund consultancy Wellershoff & Partners, has provided a statistical back-up for their pessimism.
Thanks to the extensive forward guidance of the world’s major central banks, an interest rate hike by either the Fed or the Bank of England would not take investors by surprise. However, short-term consequences could still be grave, Bank of England Governor Mark Carney has reportedly warned.
Turbulence in bond markets has left bond investors nervous and cash piles high but while more movement is expected, certainty on a few issues could see investors moving back into the market during the second half of the year.
With the traditional summer volatility set to be followed by a US interest rate hike, some managers are holding their highest-ever cash weightings – but is this the right course of action?