Investors nervous ahead of Fed meet
September 20, 2016, 10:23 pm

Asian and emerging markets hope the Fed will hold off from increasing interest rates [Xinhua]

The FOMC began to meet today for a two-day conference which culminates in an announcement of fiscal policy on Wednesday.

While US Stocks opened higher on Tuesday Asian stocks closed in the negative.

The Benchmark Shanghai composite closed lower 0.10 to 3,022.99 while Hong Kong’s Hang Seng dropped 0.08 to 23,530.86.

In South Korea, the Kospi was the exception rising 0.49 per cent to 2,025.71.

In Japan, the Nikkei closed down 0.16 per cent to 16,492.15. Japanese investors are also nervous as the Bank of Japan meets on Wednesday to announce its assessment of the stimulus program and current negative interest rates.

Since the last FOMC meeting in August, markets have roller-coastered in speculation over every bit of economic data and every speech made by members of the FOMC.

US markets opened up lower last week as it seemed chances of a rate increase were beginning to peak. But by the end of trade on September 12, there was a considerable rebound after an influential fiscal policy and member of the FOMC said it was prudent to wait on an interest rate increase.

The longer the Federal Reserve holds raising interest rates at bay the better for emerging economies. Although lower oil prices this week meant that emerging market stocks fell for three consecutive days, in the long term it will be the impact of a Federal Reserve rate hike – or lack thereof – that will strongly influence their outlook.

On Tuesday, a day ahead of the FOMC meeting,the MSCI Emerging Markets – which measures equity market performance in some 23 emerging countries and comprises 10 per cent of global capitalization – rose 0.16 per cent to 899.72 before sliding back to 897.68.

Brazil’s benchmark ibovespa index in Sao Paulo, for example, has been among the best performing in emerging economies.

On Tuesday it began to reverse a three-day slump as it edged up 0.67 per cent to 57,736.46.

Predictions

At one point, some analysts said there was a 70 per cent chance the FOMC would raise rates in October.

But that has fallen dramatically on softening economic data.

August retail sales and manufacturing output fell more than expected amid weak purchases of automobiles and a range of other goods, data from the Federal Reserve showed late Thursday, while consumer prices rose beyond forecasts.

The fall points to cooling domestic demand that continues to diminish, with sales at department stores, notably, down five per cent on the year.

US services sector hit a 6.5 year low this month after sharp drops in production and orders.

The utilities sector has also witnessed a sharp decline in output, lowering overall US industrial production for the month of August.

Industrial output – which measures the productivity of sectors comprising manufacturing, mining; and electric and gas utilities – fell 0.4 per cent last month after a downwardly revised 0.6 percent increase in July.

Last month, manufacturing output also declined 0.4 percent.

Analysts believe there is little chance interest rates will be raised in October. Some say December is more likely.

At press time, the S&P 500 closed up 0.03 per cent to 2,139; the Dow Jones jumped 0.05 per cent to 18,129.

The Nasdaq rose 0.13 per cent to 5,241.04.

The BRICS Post with inputs from Agencies