US rate hike expected to hit borrowers, eyes on equities

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June 14, 2017 (LBO) – The U.S. is expected to hike rates by 25 basis points Wednesday which will have ramifications for millions of borrowers who will find it harder to make repayments, while tightening equity market conditions.

Financial information services firm TransUnion found that when the Fed made a similar move in December 2016, some 8.6 million consumers could not absorb the hit, CNBC reported.

Though the move cost the average debt-holder just $18 a month, it “caused a financial challenge to millions of consumers” in the three months after it hit.

In terms of equities, around 84 percent of fund managers say U.S. equities are the most overvalued, with a 15.5 percent rally on the Nasdaq this year. By comparison, the STOXX Europe 600 has gained 7.6 percent this year, while the Nikkei in Japan is up just 4.1 percent and the UK’s FTSE 100 has risen 5.2 percent.

Money has been flowing heavily to bonds — fixed income funds took in $16 billion last week, the largest inflow in more than two years, while stock funds lost $1.3 billion, according to BofAML.

Nevertheless, Wall Street was in a more confident mood Tuesday notching record closing peaks, while Asian markets were mixed on Wednesday. The Dow rose 0.44 percent, the S&P 500 gained 0.45 percent and the Nasdaq 0.73 percent.

The S&P 500 technology sector rebounded 0.9 percent, following its biggest two-day decline in nearly a year.

The U.S. central bank is scheduled to release its decision at 1800 GMT on Wednesday with a news conference to follow from Chair Janet Yellen.

The Fed had held its funds rate near zero for about seven years after taking it there during the financial crisis.

While the Fed still has another hike pencilled in for this year, soft inflation data has left fund futures implying only a 40 percent chance of a move by December.