Probability of US March rate hike drops, eyes on Davos

Jan 20, 2016 (LBO) – The probability of a rate hike by the U.S. Fed by March fell to 40 percent with equity markets off to a bad start this year, as focus turns to the World Economic Forum in Davos.

JPMorgan expects the next US interest rate hike in June, and some analysts predict just two interest rate hikes by the US Fed this year. The European Central Bank could cut its depost rate, while Bank of Canada may ease monetary policy this week.

According to CME fed fund futures, the probability of a US rate hike in March is 40 percent, which increases to 58 percent by June.

Brent Crude was at 28.72 dollars per barrel on Wednesday, with China shares down 0.79 percent and the Hang Seng down 2.8 percent after US stocks meandered overnight.

With S&P 500 down 8 percent in two weeks and the Nasdaq falling 10 percent during that time, analysts say the Fed will keep an eye on the dollar which could strengthen more as China’s currency continues to lose value.

Attention at the World Economic Forum turns to the state of the global economy after China this week said its economy grew 6.9 percent in 2015, compared with 7.3 percent a year earlier, its slowest growth in 25 years.

Meantime, the International Monetary Fund cut its estimate for growth in the world economy this year to 3.4 percent from 3.6 percent, while the International Labor Organization predicts global unemployment will climb this year by 2.3 million to 199.4 million.

Joe Biden got the Davos forum underway calling for a quantum leap in the fight against cancer, while actor Leonardo DiCaprio called for fossil fuels to be left in the ground.

According to a UBS report released Tuesday, the richest stand to gain more from the introduction of new technology than those in poorer countries.

The so-called fourth industrial revolution, with greater use of artificial intelligence and robots, will affect emerging marketes reducing the competitive advantage of their cheap labour, the report said.



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6 years ago

JP Morgan Chase was wrong in 2008, I believe they are wrong again in 2016. Even the slightest rate hike of 25 basis points created a havoc in North American Markets. Two Trillion Dollars of wealth disappeared from markets and of course from peoples portfolios. The markets are so accustomed to low rates, even the tiniest hike in rates caused the collapsed of it like a house of cards. I truly believe Feds will go for QE 4 because there is no any other means available to them to stimulate economy.
The lesson for Sri Lanka is get your act in order, before open up the Monetary tool kit, you better optimize the Fiscal environment. Just like we have seen in the past 50-60 years, howling for foreign investors will not bring them to Sri Lanka. Only a sound Fiscal + Monetary policy combined with Rule of Law, and Stable Political environment is the only way forward to bring foreign investors.