Visitors Now:
Total Visits:
Total Stories:
Profile image
By silveristhenew (Reporter)
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

More QE? Rate Hikes? Opposites Attract?

Sunday, October 30, 2016 8:31
% of readers think this story is Fact. Add your two cents.

(Before It's News)

money-tree

The entire financial world is holding its breath to see what the Federal Reserve decides to do at its next meeting in December. After having postponed a rate hike several times, it’s now increasingly likely a decision to increase the benchmark interest rates has been reached. At least, that’s what the market is currently taking into consideration based on the data of the Fed Funds Futures:

fed-funds-rate-qe

Source: CME Group

As you can see, the odds are clearly in favor of a rate hike, as there’s a chance of less than 26% the Fed won’t do anything, whilst a minority expects a two-step hike (which doesn’t seem very likely to us).

But the world is much bigger than just the United States and even though the financial press is all over the rate hike (as they have been in the past 12 months or so), other countries are taking other measures. The Bank of England has started a new Quantitative Easing program, whilst the ECB is expected to continue its asset purchases beyond its self-proclaimed March 2017 target. These things aren’t a surprise, but it’s really interesting to see that the only place where inflation seemed to have been picked up is the United Kingdom.

uk-inflation

Source: Danske Bank

The slightly higher inflation numbers caused a small sell-off on the bond markets as traders are repositioning itself for a (slightly and temporary?) higher interest rate which will reduce the fair value of bonds based on the mark-up to the benchmark rates. That’s an interesting fact but definitely not alarming yet considering several short-term yields are still negative and even companies with a riskier business profile are still able to borrow cash at dirt-cheap levels. Even countries with a huge balance deficit like Saudi Arabia have been able to raise billions, and despite the fact the entire economy is oil-driven, the yield on a 30 year Saudi Arabia bond was just 4.5%, just 1.25% higher than a 10-year bond…

The world is still flooded with cash, but outside of the main financial markets, Sweden thinks it needs to do more to keep its economy going. The Riksbank, the Swedish version of the Federal Reserve, has cut its inflation forecast whilst keeping its employment expectations and growth forecast stable. To ensure a stable financial system, the Riksbank has now decided to reduce the repo rate path by quite a substantial difference.

repo-rate-riksbank

Source: Danske Bank

So all western countries are expanding their monetary asset base, but surprisingly, Russia hasn’t cut its interest further from the 10% where it’s currently at. That’s surprising because one would think the Russian economy is improving on the back of the increasing oil price which strengthens the Ruble and allows more dollars to flow into Russia as the country exports several million barrels of crude oil per day.

The Russian Central Bank has set a target to keep the inflation rate below 4%, and is still aiming to reach that specific interest rate by the end of next year after seeing the core price inflation peak at almost 20% in the middle of the oil crisis.

russia-inflation-rate

Source: tradingeconomics.com

Long story short, there are so many mixed signals in the world, and the financial system as we know it is shaking to its foundations.

Click here to read our guide to gold, and sleep well at night

Secular Investor offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies are transformed into the Gold & Silver Report and the Commodity Report.

Follow us on Facebook @SecularInvestor [NEW] and Twitter @SecularInvest

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.