Yellen Moved The Fed Still Further Away ‑ From Clear Forward Guidance

476563935What did Fed Chairwoman Janet Yellen say about raising rates at last week’s Humphrey-Hawkins testimony? She promised a wording change (“patient”) before rates were increased, but disavowed any implied promise that rates wouldn’t rise until the second meeting after the change, or that dropping the word implied a hike two meetings later.  Yellen suggested “patient” will be replaced by more data-dependent language.

Her prepared testimony contained this tongue-twister:  “. . . provided that labor market conditions continue to improve and further improvement is expected, the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2 per cent objective.”  (Comment: note her emphasis on expectations, rather than threshold levels: this will make it harder to predict the Fed’s timing…gives them more freedom of action.) 

A dovish soundbite: raising rates too quickly could stall an expansion “that is really just taking hold.” A hawkish soundbite: “we don’t want to overshoot 2 per cent [inflation] on the high side.” Continue reading

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Extracting Opportunities in European Equities – Focus on Italy

italy_wineIn the first of a series of blog posts looking at investment and opportunities in European Equities, we focus on Italy, and assess whether the strong year to date equity performance can be sustained through the rest of the year.


Will Italian Equities have what it takes in 2015?

Italian Equities have had a good start to the year fuelled by better outlook for Italy and naturally the announcement of Quantitative Easing (“QE”) by the European Central Bank.  So does the Italian market have the ability to deliver for investors in 2015 or will it prove to be another false start like 2014? Continue reading

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The 2015 Global Risk Map: Hedging Geopolitical Challenges

Map Projected on Stock Market ListingsCentral Banks are likely to continue to dominate the global economy as well as financial markets again in 2015. Asset prices will likely benefit from abundant liquidity. However, divergent monetary policies required by divergent growth paths can be expected to result in higher volatility in financial markets, alter the supply-demand equilibrium in forex markets and fixed income markets, and ultimately support equities – particularly European equities. We remain mildly positive on risk assets, especially on equities, but we are also selectively hedging against volatility and geopolitical risks.

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The Fed is Waiting Patiently…Are You?

181593521The FOMC’s January meeting didn’t break new ground; I’m waiting for the March press conference for any significant action to be discussed. As we know, patience continued to be the theme, as the Fed signaled a rate hike before June was unlikely. The minutes reveal concerns that dropping the word “patient” from its statement could risk a tightening tantrum because the markets would interpret the change as clearly signaling a June tightening.

This is disturbing—the zoo animals should not be watching the patrons. The Fed should not be worried about short-term market volatility. After the meeting, we had strong January labor market reports…so don’t fret the FOMC minutes: the Fed is still data dependent (employment, not bond market) . Continue reading

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Greece is the Word

greeceThe three key take-away points from last Friday’s deal:

1. Greek politicians shouldn’t play poker: Whether the new government was faced with a lack of time or simply wasn’t experienced in bail-out negotiations, we don’t know, but neither Greek Prime Minister Alexis Tsipras, nor his Syriza party, appeared to have any alternative to their debt write-down plan. So, once Germany decided that a further debt write-down was simply non-negotiable, Greece appeared to have no “Plan B”. As the Greek banks suffered significant deposit outflows (and the Greek banking system rumoured to be only a few days away from collapse), Mr. Tsipras and Greek Finance Minister, Yanis Varoufakis, were left holding a bad hand.

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