Technical & Fundamental Oil Reports Specialists

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Done but not dusted

Published Thursday, December 17th, 2015

The emergency is over. We have lift-off. A return to normalisation. These are the headlines but it is a strange normalisation when the President of the Federal Reserve goes out of her way repeatedly to assure nervous markets that it is a small step, that monetary policy remains “accommodative” and that rate increases in future will be “gradual”. It is almost as though she is apologising for the increase and not at all confident that it is the right thing to do. More of a gamble than a measured decision.

Why is she so cautious? Why are the markets so nervous? How can a 0.25% interest rate increase be so threatening? Is it because she and they are far from confident on the impact it will have in emerging markets and in the high-yield bond markets leading to collateral damage that blows back on the US economy. The Bank of International Settlements and IMF have long warned of Armageddon in these markets if interest rates are raised prematurely, even by a small amount.

Should we be alarmed by the failure of junk bond funds run by Third Avenue and Lucidus and redemption closure by others? Are these the proverbial Bear Stearns canaries? That may be next week’s or month’s catastrophe but for the moment the US equity markets greeted the rise with enthusiasm. The cynical would say this was more on act of patriotism than true belief. Or perhaps self-serving to pump up year-end performance.

to read the rest of the report, please click here

Posted by David Hufton