He said: “We cannot ignore a development like in the past few days, but I think that the Fed still favours an earlier rate rise.
“The global economy is still growing at 2.5-3%. Domestically there is a US growth headwind, but things are generally fine – core inflation is still close to 2%, and low commodity prices are arguably very good news for the consumer. So the broad economics and financials say that the Fed is on track, and we should be looking at September rise.”
McQuaker’s sole concern stems from the global equities slump, which he believes is almost at the mercy of Chinese policymakers.
“The third part of the equation is volatility, which the Fed is wary of,” he expanded. “The current market conditions mean that the Fed could be inclined to push tightening out a bit.
“If the turbulence blows over quite quickly then we might be looking at an October rate rise, but if there is a hangover then it could be December before the positive economic conditions are in the ascendancy and the Fed can raise rates.
“Policy response in China could be part of the picture. The market would warm more towards policies targeting growth than those aimed at the stock market – some economic stimulus and greater use of fiscal flexibility would be welcomed by markets and mitigate some of the external threat as viewed by the Fed.”
It is a view shared by both Haynes and Stupnytska. The former commented: “This latest leg of the sell-off is painting a pretty pessimistic picture, and markets are waiting for a Chinese policy response.”
Stupnytska added: “Overall developed market growth fundamentals are relatively solid and China has the tools to arrest the currency slowdown, so the Fed may have the opportunity to hike in December. However, if China does not implement any policy response, or there is a sell-off in markets, then it will have to wait.”
Given the widespread losses in global equity markets, the dearth of yield on the fixed income side, and the likely delay of rate hikes across the board, are there any investment opportunities out there?
