One Man’s Opinion: Will Weak Oil Prices Keep Inflation Expectations Subdued?

92835431The US Federal Reserve’s latest policy statement may have omitted the “patient” word, but there seems to be less certainty in the central bank’s overall tone, indicating the Fed wants to be less predictable about a June rate-hike given the multitude of data that is affecting the US economy, said Matthew Beesley, head of global equities at Henderson Global Investors.

Fed chair Janet Yellen is very keen to ensure there’s no supposedly “Yellen Put” factored in by the markets and there’s no free-ride for investors in the US. Since the US equity markets are at record high, there’s clearly this fear about the price levels of asset classes when interest rates start to rise eventually.

The Fed is trying to send the message that it would move responsibly when things start to change; it wouldn’t be just a dogmatic move when rates rise simply because that’s how they used to be in the past.

Rates will rise only when the Fed sees inflation-rate sustained or likely to be sustained around the key 2 percent level and there’s very little evidence of that happening right now. Falling oil prices are likely to exacerbate weak inflationary trends further, he noted.

European equity markets finished strongly over the past couple of weeks while US equities ended up weaker. However, the US dollar performance of a European index has been much less impressive. Asked to explain, Matt said European equities can get very strong this year, particularly the export-oriented stocks (due to the euro’s decline). However, if charts are changed from euros to dollars, it’s not very impressive and many investors would be hedged in their exposure in Europe, he noted.

Asked if Janet Yellen’s dovish tone means the Fed is just delaying the inevitable and simply kicking the can down the road, Matt said the US Fed is not just the reserve bank for North America.

The Fed makes policies for the US, but they have clear ramifications for the rest of the world. Emerging markets, particularly those countries that have been borrowing in US dollars and those that are export-driven, exchange rates are clearly very important.

For global investors, it’s difficult to find individual companies as the risks of the economy are overwhelming lots of fundamentals for very interesting growth companies, he concluded.

You can watch the video here.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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