Just one sleep – well a partial sleep to go before we learn the fate of American interest rates – will the Fed sit or will it lift?
The Organisation for Economic Co-operation and Development (OECD) overnight urged the Fed to lift, slowly, without suggesting a start date. But it said soon. And Goldman Sachs head, Lloyd Blankfein said sit and wait, as did writers on the Financial Times.
But we know the IMF and World Bank and quite a few other global economic and business worthies don’t want a rate rise – quiet yet.
And while being a bit strong about a rate rise, the OECD provided contrary evidence of its own by downgrading its 2015 and 2015 global growth forecasts (and cutting China’s as well).
The OECD cut its 2015 global growth forecast to 3% from 3.1% in June and its 2016 forecast to 3.6% from 3.8%. Snd it now expects Chinese growth to slow to 6.7% this year and 6.5% next year after 7.3% in 2014 (down from the first reported 7.4%).
Economists say the cautious outlook indicates the OECD sees a serious threat from wobbles in China’s economy and on its financial markets. The organisation pointed out that America was one of the rare parts of the world where growth was rising. Japan’s forecasts were also cut.
Financial markets are either pretty relaxed about the prospects of a rate rise, and have already accommodated themselves to one, judging by the four day rise up to the close of trading, or they reckon that the Fed won’t move.
Gold and oil reckon there will be no rate rise – Comex gold futures jumped $US16 to $US1,119 an ounce and US oil futures jumped 5.7% to the high for the month, as did Brent futures in London, which were up more than 4% on the way.
For commodities priced in US dollars to stage such a sharp rise a day before a crucial fed meeting tells us traders in commodities don’t see rates rising (because a lift in US rates will boost the US dollar).
In fact the US dollar tipped lower overnight and the Aussie dollar rose to within sight of 72 US cents (and to think all those clever forecasters here last week predicting a 66 or 60 US cent Aussie dollar as though it was just around the corner).
But US bond investors reckon a rate rise is on the way and lifted yields on the key 2-year bond to 0.811%, the highest it has been since 2011. The 10 year yield jumped to 2.301%.
Data on US consumer price inflation was weak – a fall in the monthly headline rate and no real rise over the past year, on the core basis, the annual rate was 1.8%, still short of the Fed’s 2% target, like it has been for the past three years. US real wages rose half a per cent in the month and 2% for the year, but only because of the sharp fall in inflation.
After Wall Street’s gains (and those in European and Asian markets, especially in China), our market is heading for a rise of more than 40 points this morning after overnight trading on the ASX 200 futures market.
On Wall Street, the S&P 500 rose 17.22 points, or 0.9%, to 1,995.31, the Dow was up 140.10 points, or 0.8%, to settle at 16,739.95 and the Nasdaq Composite added 28.72 points, or 0.6%, to close at 4,889.24.
So the message from the markets is clear – no rate rise if you are an investor in equities or commodities, but those pesky bond market dealers aren’t so sure. For once what happens in China won’t matter today and overnight, it is what happens in Washington.
