June is now a certainty for the Federal Reserve to raise interest rates again, that is if the markets interpretation of last night’s Federal Reserve’s statement is correct. Ahead of the statement bond markets were pricing in thirds one third odds in favour, this has now jumped to 10/1 on. The recent dip in economic data culminating in the first estimate for US GDP to be running at an annualised rate of 0.7%, was described as “transitory” in the statement. Yields on US treasuries hardly moved on these hawkish comments, yields on the ten-year US treasury remains below where it started the year, currently trading at 2.33%.
The Federal Reserve is not the only economy to be tightening rates, the second largest economy in the world, China, has seen further tightening in the money markets as overnight interbank rates rose to 3%. These measures are intended by the Chinese central bank to further control the shadow banking system. UBS analysts are starting to question whether the two largest economies in the world are tightening policy at a time when the global economy is already showing signs of slowing.
The anomaly of long term interest rates remaining below the rate of inflation in many developed markets continues to suggest that bond markets at least remain sceptical of the strength of the global recovery. It also worth bearing in mind that the reflation trade was not really born from the election of Donald Trump, but more from the additional liquidity China pumped into the global economy this time last year.
Finally, I would like to thank Shareradio, which we had the opportunity to appear on many an occasion. Hopefully you have taken time to listen into some of the podcasts as sadly, despite the best efforts of all its employees, the station will be not be broadcasting live from Friday. One can only hope to be resurrected stronger like the phoenix from the ashes. We were lucky enough to work on breakfast show hosted, more often than not, by Nigel Cassidy, a seasoned professional reporter of many years’ experience at the BBC. Shareradio was innovative in its desire to bring money matters into the home via digital radio. There are limited was by which the individual can keep in constant touch with the day’s developments of capital markets, get professional insights from all industries, and have had the opportunity to air thoughts on personal money matters. Shareradio looked to address this. As a small reminder, we have uploaded a piece from this morning’s show.