Nasty uncertainty prevails in the markets
Central banks have struggled to contain market anxiety over a sooner-than-expected rate-rise.
Last Friday's American payrolls report was a "cold shower" for those who hoped the US economy was finally accelerating, says The Wall Street Journal. Just 169,000 jobs were created in August and the previous two months' payroll gains were revised down. The unemployment rate declined to 7.3%, but only because a record number of people gave up looking for work and left the labour force.
The August employment report was especially important, as it was the last major statistical release before the US Federal Reserve meeting on 18 September. At this meeting, the Fed is supposed to decide whether to embark on tapering' quantitative easing (QE) reducing the quantity of various bonds it buys with printed money. Next year, with unemployment around 7%, it will end QE altogether, it has suggested. Now, given the disappointing employment data, some are wondering whether the central bank might stay its hand.
Having announced a taper already, it is still likely to go ahead, reckoned former Fed vice-chairman Donald Kohn, "complete with caveats about how it could be reversed and how it doesn't imply anything about when rates will be raised".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Such higher long-term rates in the market have already tightened monetary policy, says Randall W Forsyth in Barron's. American mortgage rates, for instance, are priced off US Treasuries. Mortgage applications have slumped and new house sales "are beginning to buckle". So one major worry is that central banks could have lost control of interest rates and monetary tightening even before they start trying to reduce the pace of monetary loosening. And due to the poor jobs data, the pace and nature of the latter move has become more unpredictable than before. All of which, says John Authers in the FT, leaves investors with "the kind of nasty uncertainty" that can lead to "financial accidents".
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
Pensions face “double tax” due to inheritance tax change - what are your options?
The chancellor’s Budget announcement that pensions will be liable for inheritance tax from April 2027 will have big implications for many people’s retirement plans. We look at what to do now to avoid a huge tax bill
By Ruth Emery Published
-
Asia and the influence of the US
September’s US interest rate cut should be good news for Asian markets. However, there is still potential volatility surrounding the US election. On the abrdn Asian Income Fund, we are responding by raising the quality of the portfolio and structural domestic themes
By MoneyWeek Published