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The FED seems to be preparing markets for a december hike… if nothing happens in-between

27 September 2016

Don’t fight the Fed, don’t fight the Fed…

Here is what we should repeat day after day, rather than trying to face central banks… things are not so complicated, you just need to buy more or less any asset that bares little idiosyncratic risk, preferably with an income bias and it is going high and higher. We had Bank of Japan (BoJ) and Federal Reserve (Fed) meetings this week, here is our take: 

  • In Japan, the BoJ didn’t announce anything new, apart from moving from QE to QQE, adding a qualitative factor to its purchasing program with the objective to steepen the yield curve. To our eyes, the central bank acknowledges it has few options and the result is flattening yield curves
  • The Fed didn’t hike, which is not surprising given market pricing was very low, which historically has prevented the American institution from moving. Language is trying to be hawkish on the margin and tries to prepare investors for a December hike - provided nothing bad happens until then. But in the meantime they revised down their GDP and neutral long term rate downwards, so markets took it dovishely. Consequently, equities are up are yields are down.

Markets were hesitating after the ECB; the trend was this Thursday much clearer: with a dovish Fed, buy income, included high dividend equities

La Française’s Essentiel Markets brings you an insightful analysis of the latest financial news by François Rimeu, Head of Total Return at La Française Asset Management.

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