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Aug 2016 Market Update

Current Assessment Of Equity Asset Markets

For A More Detailed Analysis

Click Here for the Aug 2016- Perspective Market Update

Chairman Yellen explains US monetary policy at Jackson Hole.

In summary:

  • U.S. economic activity continues to expand, led by solid growth in household spending;
  • Business Investment remains soft;
  • Subdued foreign demand and the appreciation of the dollar since mid-2014 continue to restrain exports;
  • While economic growth has not been rapid, it has been sufficient to generate further improvement in the labour market. this a further rise in bond yields, especially in the corporate bond market, may trigger an equity market sell-off in the short run;
  • Inflation has continued to run below the Fed’s objective of 2% p.a., reflecting in part earlierdeclines in energy and import prices.
  • Looking ahead, the Federal Open Markets Committee (FOMC), which sets monetary policyincluding interest rates, expects moderate growth in real gross domestic product (GDP),additional strengthening in the labor market, and inflation rising to 2% p.a. over the next fewyears, but there is not a high degree of certainty about this (see below).
  • Gradual increases in the Federal Funds rate will be appropriate over time.
  • The case for an increase in the Federal Funds rate has strengthened in recent months but decisions always depend on whether incoming data continues to confirm the FOMC outlook.
  • There is a 70 percent probability that the Federal Funds rate will be between 0% and 3.25% p.a at the end of 2017 and between 0 and 4.5% p.a. at the end of 2018. The reason for the wide range is that the economy is frequently buffeted by shocks and thus rarely evolves as predicted. When shocks occur and the economic outlook changes, monetary policy needs to adjust.
  • Despite the uncertainties, the Fed is still confident that it will have “a policy toolkit” that will allow it to respond to a wide range of possible conditions. (This may for example mean a return to quantitative easing).

Given the outlook for low interest rates and bond yields over the medium to longer term, stay cautiously invested in equities, but slightly underweight, providing a strategic cash reserve to redeploy into equities in the event of a shorter term crisis driven sell-off in equities, which would be expected to rebound in due course.

For A More Detailed Analysis

Click Here for the Aug 2016- Perspective Market Update






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This information is of general nature only and neither represents nor is intended to be specific advice on any particular matter. We strongly suggest that you seek professional financial advice before acting.