Millennium Money

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China’s 2016 Global Shopping Spree

China’s 2016 Global Shopping Spree

Almost two months into the new year and M&A activity has failed to maintain last year’s momentum. This year’s M&A activity has seen a 23% decline compared to the same time last year. 2016 has brought much uncertainty to corporations and countries worldwide as they address problems ranging from monetary policies to worries of a global growth slowdown. Last year’s M&A activity was record breaking with deals totaling more than $5 trillion, the first time this mark has ever been reached (2007, adjusted for inflation surpasses this coming in at $5.27 trillion). Despite this year’s decline, deals totaling $336 billion have already been announced. Chinese corporations have contributed a significant part to this year’s tally. So far there have been roughly 80 such deals year-to-date coming from Chinese corporations. Although Chinese firms buying foreign companies is not new, this year’s buying comes from a country that is facing financial pressure on several fronts and from the world’s point of view, a country that has slowed significantly. Below are just some of the deals announced thus far:

– China Chemical National Co, or ChemChina, whose operations range from production of various chemicals, rubber products and industrial equipment, offered to buy Syngenta, a producer of agrochemicals and seeds for $43 billion. If approved by regulators worldwide, it would be China’s most ambitious takeover to date.

– Last year ChemChina bought Pirelli, the fifth largest tire-maker in the world for $8 billion.

– ChemChina has also agreed to buy KraussMaffei, a German manufacturer of machinery that process plastics and rubber, for $1 billion.

– HNA’s Tianjin Tianhai will buy Ingram Micro for $6 billion. Ingram Micro is one of the largest global wholesale distributors of personal computer and other tech products.

– Perfect World Pictures has planned to invest $250 million with Universal Pictures to cover 25% of production costs with most movies over the next five years.

– Dalian Wanda has agreed to acquire media company, Legendary Pictures for $3.5 billion in cash.

– General Electric, which has been slimming down in order to shed its SIFI (systemically important financial institution) designation and return to its industrial roots, has agreed to sell its appliances unit to Haier for $5.4 billion.

– Zoomlion Heavy Industry Science and Tech has made an unsolicited offer to buy U.S crane maker, Terex for $3.3 billion even though there is already a merger pending with Konecranes.

– Fairchild Semiconductor which is already in deal talks to be acquired by ON Semiconductors for $2.3 billion, has an offer by China Resources Microelectronics Ltd. partnered with Hua Capital Management, that would value the company closer to $2.5 billion.  (The U.S Committee of Foreign Investment has advised not to proceed with a China deal.)

– Royal Phillips had planned to sell an 80% of its LED components business for $2.8 billion to GO Scale Capital, a consortium of mostly Chinese investment funds. This however was terminated at behest of the U.S Committee of Foreign Investment, siting security concerns.

– China since November of last year has added roughly 60 tonnes of gold, estimated at upwards up $2 billion, to its official reserves.

Recent Actions From Global Central Banks

Recent Actions From Global Central Banks

Central Banks Around the World

Bank of Japan
The Bank of Japan on January 29th announced to the world that they would be charging banks to keep money at the central bank. The BOJ now joins the rank of central banks experimenting with negative interest rates. The rate of -0.10% goes into effect today, February 16. In theory the idea of using negative interest rates is that banks are incentivized to increase lending and increase the liquidity of money through the economy instead of paying fees to each country’s central bank for reserves that are unused. Following the announcement the Nikkei Industrial Average has been on a downward spiral, losing about 16% from February 1st to the 12th. The BOJ move comes amid an economy and a society that is questioning whether Abenomics has had any effects in the past three years. Japan in the final three months of 2015 contracted at a -0.4% rate, with the annual rate coming in at -1.4%. The problem in a deflationary environment is that consumers seeing that prices are falling will postpone any purchases until the future when they expect prices to be even lower, further exacerbating the problem. Despite the recent economic data and the introduction of negative interest rate the yen has continued to appreciate undermining the BOJ’s actions. Negative interest rates would drive down the appeal that the yen would have to worldwide investors and traders but the given the volatility seen in global markets as of late the yen has been seen as a haven of safety. A stronger currency pushes down consumer prices domestically as it makes imports cheaper. Japanese exporters, especially car manufacturers are feeling the most pain as they see lower profits due to a stronger yen.

U.S Federal Reserve
Fed Chair Yellen, testifying before the House Financial Services Committee on the 10th gave a few updates on the economy from the central bank’s point of view. Most significantly was her saying that they have considered using negative interest rates as of late but more specifically back in 2010 when it had gained more appeal amongst Fed members. Interestingly enough on January 28, the Fed released their 2016 Supervisory Scenarios for Annual Stress Tests, which include the scenario of negative rates. Aside from the mention of negative rates and more than 3 hour testimony Chairwoman Yellen said that she sees “a domestic economy that is pretty strong and growing at a solid pace, offset by some weakening spilling over to us from the global economy.”

People’s Bank of China
The People’s Bank of China, over the weekend came out saying that they no longer see the need to further devalue the yuan. This reassurance by the bank has significant implication on global trade as it removes any uncertainties and jitters that trading partners might be having. With a stable currency for the foreseeable future, countries won’t have to reevaluate or depreciate their currencies in order to stay competitive with China. This action contributed to Japan’s Nikkei 7% rise on Monday.

European Central Bank
European Central Bank President Mario Draghi, while speaking at the European Parliament on Monday said that the ECB “will not hesitate to act…[and] do its part” in propping up the EU. This reiteration came amidst the recent selloff in European bank stocks which has brought into question whether these banks have enough of a capital cushion in case of downturn and their profitability in an economy with dismal growth and low interest rates.

Market Throws A Tantrum After Fed Statement

Market Throws A Tantrum After Fed Statement

Just a little over an hour since the Fed released their statement in this year’s second meeting and markets have taken a dive into negative territory. Just shortly after the release the markets were trying to make sense out of the information and indices were up briefly but none of the gains were sustainable. Leading up to 2p.m the amount of capital advancing and declining in the S&P was almost fairly even. As of right now there is roughly $6 of capital fleeing the S&P for every $1 being bought, while over on the DJIA the ratio is much higher at $60 of capital fleeing for every $1. As we get closer to the end of today’s session the DJIA has pared some of its losses, with the index only down ~220 points after nearing a 290 point loss just minutes ago.

It appears that the market was looking for a more accommodative statement from the Fed, one in which the March rate hike might have been pushed from the table.  The Fed did however state that they would be “closely monitoring global economic and financial developments”. In other words should China drastically shock the world or any other foreseen event arise, the Fed will move to push their hikes into the future. On a domestic front the Fed said that “economic growth slowed late last year” and the inflation will be kept low due to the price of oil. If economic growth slowed late last year the question arises why the Fed would move on with a rate hike. A logical assumption would be that the Fed had wanted to move earlier than they were letting on but due to movements in the markets they had to move with a light foot to avoid a massive move to the downside. Their move in December could have been a move to indicate to the markets and the world that it’s time to get off cheap money, that has inflated assets and back to fundamentals and rationality.

What has happened in the market since the start of the year has been an over reaction to the Fed’s rate hike plan. Market participants in the short term tend to over react and expect a worse outcome than the actual event happening. Morgan Stanley has come out saying that the recent market actions was the market anticipating and preparing themselves for 4 rate hikes this year. There are a lot of unforeseen events that can arise from now until the Fed’s last meeting that can stall a hike or a series of hikes.

With so much market turmoil the best thing to do as of now is to monitor the markets from the sidelines.  With the possible rumors that non-OPEC and OPEC members might want to sit down and talk about possible production cuts have somewhat stabilized markets since Monday. With oil and the index notching some gains for the year. This however should be taken with a grain of salt. Iran will soon start to export their oil. The API came out today saying that oil inventories grew by more than 8 million since last week and that demand has lessened. This rumor that Saudi Arabia might want to call an emergency OPEC meeting was heard last year as well but nothing materialized out of it. Saudi Arabia being the largest oil producer stands the most to gain if every other oil producing state, country faces severe economic and political pressure.

ECB President To Possibly Ramp Up Quantitative Easing

ECB President To Possibly Ramp Up Quantitative Easing

Mario Draghi’s announcement today that he will most likely be ramping up stimulus efforts in March stemmed the worldwide selling for now at least. Asian markets on Thursday morning opened well into the green before reversing course and settling in negative territory with the Shanghai Composite down more than 3%. This continued selloff might have been the Asian markets following America’s volatile day. European indices however indicated a positive opening ahead of the ECB meeting and treaded higher after the release. The CAC 40, the FTSE 100 and the DAX finished the day up 1.97%, 1.77% and 1.94%, respectively. Further stimulus in the EU might be good for investors, traders and exporters but there can be consequences with increasing bond buybacks when some sovereign bonds are already yielding negative rates. Negative interest rates in theory may work but to use them nationwide and for long periods of times might see some adverse effects. The problem that Europe is facing is being exacerbated by oil’s decline, which has kept inflation below targets and China’s woes. The problem EU countries face is that they might be flush with cash to lend out but if there are no markets or business prospects to put that money to use there will be no impact on growth or inflation. If Draghi goes ahead with more stimulus there might be a pause on the Fed’s interest rate hike plan as the divergence between the two economies would widen. If we keep hiking rates we would only be pulling money out of other economies as foreigner pile into US bonds, most likely negating to a degree the lower rates the ECB plans for.

America followed Europe’s lead into the green despite futures being down and the EIA weekly report indicating a more than 4 million barrel. The EIA report however showed that the build was less than yesterday’s APA report. This sent WTI to settle 3% higher for the day. Conviction was not strong in today’s markets as the DJIA moved from up 200 points to just 80 points and the moves indicated hesitance on behalf of traders.

Yesterday’s Market Action

DJIA saw an intraday move of almost 1000 points. From the start of the session to around 12:30p.m the DJIA was down roughly 600 points with the breadth of decline spreading to all sectors of the markets. At around 12:50p.m there was a massive market-wide reversal that started off with the Russell Index heading into the green before the rest followed. At this point short sellers might have realized that it was time to close out some of their winning position and take money off the table. Another reasoning for such a reversal might have been the arrival of buyers looking to pick up beaten down stocks that appear to have better valuations now. At the close the DJIA was down only 200 points with the rest of the indices down roughly 1.2%. The selling accelerated after WTI dropped more than 7% due to the API report of a bigger than expected inventory build.


No Reprieve in the Markets So Far

No Reprieve in the Markets So Far

Three weeks into the new year and markets have continued their downward slide as concerns over global growth and oil’s decline persist. All three American indices have declined by at least 10% year-to-date, marking entry into correction territory. The past couple of weeks have seen an increase of trading days in which there were more than a 1% move in the indices. On Friday alone the DJIA saw a 568 point decline before cutting its losses in nearly half. These larger movements have caused the VIX index to spike to around 30, much higher than its 10 year average. Most major indices opened in the green today before drifting lower throughout the day with the DJIA and SPX eking out a slight gain for the day.

With earnings season kicking off,  companies which have reported record revenues and profits such as the banks, have not gone unscathed with declines of up to 6%. Netflix on the other hand reported lower earnings than last year but increased both international and domestic audience and saw its shares spike roughly 7%. Concerns from last quarter of a decrease in domestic audiences due to the involuntary cancellation of subscriptions blamed on the introduction EMV credit cards were not heard this time. Caution in NFLX is warranted as the stock has gyrated between $98 and $127 in the past couple of weeks and the stock itself trades at 600 times earnings. CSX, which reported higher profits on lower revenue due to cost saving measures, said that they possibly see a stabilization in rails by the end of the year or the next. Followers of the Dow Theory will see this as a positive as it presages any movements in the overall market. Many money managers have increased their cash holdings or moved money to treasuries where they have the possibility of earning next to nothing but any major losses are foregone. Holding on to cash during these times is a good idea as it promotes bargain hunting and adding companies to your portfolio, but there is still potential downside in the markets that is unknown.

On Oil

The US has formally lifted many of the economic sanctions that were placed on Iran over the weekend. With the recently regained access to billions of dollars Iran, now has the money to renovate their oil infrastructure and bring production back online. Their goal is to produce at least 1 million barrels of oil this year and regain foreign customers that were lost while they sanctioned. They have intimated that they are willing to further discount their price or to even barter their oil with other countries.  This action will only add to the current supply glut and further strain government budgets that derive most of their wealth from oil. Individual companies are also in peril if oil prices continues to decline as many are not profitable at such low levels. J.P Morgan in their earnings report and the conference call that followed said that they would be setting aside $124 million to cover potential defaults in their energy portfolio. If oil continues to stay at these levels they would increase this reserve to $750 million. Citigroup also came out saying that they would be putting in between $300-$400 million aside for any potential defaults. Forecasters call for 2016 to be the year in which we see an increase in bankruptcies and defaults in the oil industry. In the medium to long term this is beneficial as inefficient production is taken offline and prices might begin to stabilize. Although China’s report on Tuesday that their economy grew at 6.9% for the year slightly propped oil prices they are still at multi-year lows.


A Not So Sweet 16

A Not So Sweet 16

Foreign external factors have so far pushed markets worldwide well into the red. The DJIA has lost roughly 550 points this week alone, with the SPX down around 50 points. The tone of this week was set by China’s release of their manufacturing survey on Monday, which had a print of 48.2. A reading below 50 indicates contraction. What appears to have exacerbated the report’s effect was the stock halt that happened on the Shanghai Composite and the Shenzhen Composite. China has recently adopted new standards to their trading exchanges in which depending on how much the indexes fall there will be a pause or halt of trading for the day. The day halt kicked in when both indexes fell by more than 7% on Monday. The selling continued worldwide as all markets opened in the red with the German DAX down by almost 4%. All major indexes fell on Monday, with the DJIA falling 276 points. American indices were dragged down further as the release of the ISM manufacturing survey showed a continued contraction with a 48.2% reading. The non-manufacturing survey had a read of 55.3, a slight drop from the month’s prior of 55.9.

The reaction that ensued following China’s announcement may have been overdone. China has long been shifting their economy from a manufacturing state to a consumer and services one. Their recent actions such as funding a new Asian Development Bank, the introduction of the yuan to the IMF’s reserve currencies and new market regulations show a country which is moving towards modernization. There may be actions that are controversial but the country still has 6-7% growth per year which if continued will see an economy of more than 1 billion inhabitants double within the decade, yet again.

The start of the week also saw news out of the Middle East.  There are growing tensions between Saudi Arabia and Iran, both petroleum producing countries. Saudi Arabia over the weekend executed a popular Shiite cleric along with 46 other prisoners. Iranians responded by storming and setting ablaze the Saudi embassy in Tehran. Following these actions, Saudi Arabia cut all ties with Iran. What initially happened worldwide was that these moves were seen as beneficial towards oil prices. Saudi Arabia however came out saying the next day that they would be cutting prices to European customers and that they would not cede any production due to Iran. This price cut shows how willing Saudi Arabia is to maintain market share in a world that is oversupplied. Currently oil is hovering around $34 a barrel, after rising to $38 near year’s end.

This morning news that negatively affected markets worldwide was the rumor that North Korea had detonated a hydrogen bomb. International power were skeptical of the claim as the man made earthquake that was recorded near North Korea was of similar magnitude to prior atomic explosions. A hydrogen bomb would have had much larger reading on the Richter scale.

Selling pressure has been constant since the end of last year with no heavy buying pressure. Although major indices are witnessing steep intraday losses there is no panicked selling going on. For the most part investors and traders may just be waiting for the rest of the market to head lower in order to start buying. Aside from the hottest tech stocks the majority of the market is already past correction territory, with many already in bear territory.

A Federal Hangover 7 Years in the Making

A Federal Hangover 7 Years in the Making

After a short lived rally following the 25 basis point increase by the Federal Reserve most major indices gave up all gains for the week. They are now on track to continue last week’s selloff. From the start of this week all major indices saw heavy and constant selling pressure with buying pressure that fluctuated greatly throughout the week. With interest rates on the rise, and four more in store for next year, volatility will become a more common trait of the markets in weeks and months to come. Even with today’s massive selloff that saw the Dow drop more than 300 points and the SPX looking to break below 2000, the VIX index is still hovering only around 20. The run to the exits appears to very calculated and under control, despite many money managers and reports saying that a rate hike is a good omen in the short term.  What a rate hike this late in the cycle is attempting to do is deflate the asset bubble that was stoked following the aftermath of the financial crisis. A rate hike should not be seen as  positive for the stock market as many have attempted to do in the media. A rate hike will make the popular share buyback programs of corporations smaller than required to keep earnings per share appear to be stable or increasing. This bull market has seen stocks triple since 2009 with any more upside from here seen as unsustainable. The old adage that bull markets never die of old age, may not hold up this time around.

Oil continued its slide to sub $35 levels and this decline picked up following today’s report that the number of oil rigs have increased from last week. Raw materials such as steel, gold, silver after declining on Thursday posted a gain today.

On Raw Materials

With the splitting up of Alcoa coming sometime in the middle of next year and the likes of Icahn in Freeport McMoRan, there are opportunities in the commodities section. Although Carl Icahn might be early into the trade, he does have the right idea. Commodities as a whole have done poorly due to various reasons such as China’s slowdown and a stronger dollar. There are good opportunities if one is willing to be patient. Alcoa has recently announced that they will be splitting up into two companies. Their light aluminum business that deals with aerospace and automobiles have been booming. Just today Alcoa announced a $2 billion contract with Boeing to provide it with materials. Lower oil has provided a tailwind to consumer who in turn have been buying cars in mass for several consecutive quarters now. Due to government regulation that require higher mileage efficiency, automakers have been switching to aluminum body frames which drastically reduce the overall weight of the car. The aerospace industry is also doing well and forecasted to keep growing as the middle class in India and China keep increasing. As disposable income increases, families want to travel and explore the world. The airline industry is forecasting that carriers will have to keep adding to their fleets to keep up with the expected increase in demand. They are also asking encouraging and incentivizing more students to become commercial pilots as they also see a dearth of experienced pilots in the coming years.

Freeport McMoran, one of the largest producers of gold and copper have recently announced that they have had activists take stakes  in the company. With a current global slowdown and the dollar only strengthening further, commodities don’t have a bright future ahead unless one has a long time horizon. Once rates get to a point where the Fed believes that the economy can no longer swallow any more hikes, commodities will be a very interesting sector to look at as the Fed might begin to cut rates once again. Currently gold is hovering around $1000 an ounce although many say that it still has more downside especially if one sees that China has been increasing their holdings tremendously, thereby supporting prices. This move might have been in regards to the yuan or reminibi being added to the IMF’s basket of currencies. Although gold previously was seen as a safe haven after the financial crisis, it has lost much of its luster. In an inflationary environment gold is worth holding. Gold does not lose its value over time as the dollar does. What gold has always attempted to do here in the US, is maintain the value of the dollar as if it were not been weakened by monetary and fiscal policy.  Currently however most countries in the world are dealing with the threat of deflation, lessening the appeal  of gold.

The world has been in a slump for some years now and eventually will have to be pushed forward whether its through more experimental monetary policy or spending programs. Once a catalyst has been identified and verified as producing real growth and expansion, these beaten down sectors will once again pick up.

Eve of Federal Reserve Rate Hike

Markets continued to rally ahead of tomorrow’s historic FOMC meeting, in which markets are expecting the first rate hike in almost a decade. A rate hike would confirm that the economy as a whole is on a stronger footing and capable of withstanding coming off interest rates that have been near zero. Oil continued yesterday’s rally, although the American Petroleum Institute just released their weekly report that stated oil inventories grew by 2.3 million barrels this after being expected to fall by 1 million. This might dictate Thursday’s actions as any decline in oil tomorrow might be overshadowed by the FOMC meeting.  If a rate hike is in play tomorrow, oil should not be rallying as it has in the past two days. A stronger dollar would make it more expensive for foreigners to buy commodities such as petroleum. The stock market as a whole does have a reason to move to the upside as a rate hike shows that there is underlying growth in the economy which can help corporations as they will have a market to sell services and goods to. In the longer term a rate hike means that corporations will no longer be able to expand and continue their multi-billion dollar share buy backs which have become common practice. A rate hike this late into the business cycle can also have adverse effects as it can tip the economy into a recession sooner. The economy as a whole has been in a boom cycle thanks in part to Fed money since 2009 and during this time it has witnessed the creation of millions of jobs, lower unemployment, and a stock market that has more than doubled. A rate hike in what has been a lackluster worldwide slowdown would translate into corporations having higher debt obligations, in turn also reducing the record M&A activity that we have seen this year. Governments would also see the price of all their current American debt holdings drop in value, leading many to sell them ahead of any rate hike. Indeed, foreign governments have sold off $55 billion worth of Treasuries in the period ending in October.

Markets appear to be all over the place ahead of tomorrow. Yesterday saw continuous heavy selling throughout the day with the S&P seeing capital outflows outnumber inflows throughout most of the morning. It was not only when oil started to climb almost 2% for the day that all major indices turned around and headed into positive territory. At one point there was roughly $800 million worth of sell orders for only $20 million in buy orders. The amount being sold throughout the day kept steady  with the amount of buying steadily increasing after noon. From that fact most participants seem to be fleeing the market and moving into safer havens.

The VIX index, also known as the fear index, fell to below 21 after briefly rising to over 26 over last week’s turmoil. A tighter Fed also means that there will be higher volatility in the coming months. The lack of volatility following the 2008 crisis was a result of the Fed’s easing. With the whole system awash in money there was no need to quickly get in and out of trades but rather wait until everyone started to pile onto the same trades.

Whether or not the Fed succeeds into slowly deflating the current asset bubble or tipping the economy into recession will be been seen in a couple of months time.

A Return Back to Fundamentals?

A Return Back to Fundamentals?

Markets today managed to break a three day losing streak amidst a continued decline in oil. Oil finished trading at the NYMEX below $37 a barrel with several attempts made throughout the session to head into positive territory. From the start of trading this morning, the market was attempting to look for direction with the DJIA up just 40 points before declining and briefly entering negative territory. Futures for all three indices were trading very much in the green since the opening bell, foretelling the small rally very early. Around mid-day, all indices began a steady upward ascent which took the DJIA to a 200 point gain and the S&P 500 to a near 20 point gain. Oil traded mostly horizontal during mid-afternoon before resuming its decline towards multi-year lows. As for the indices, gains were not sustainable as they closed with less than half of their gains.

Today’s market could point to a new direction and sentiment that traders and investors are taking on. With oil’s continued decline since last year and the expected Federal rate hike next week, focus is shifting to fundamentals. Market participants are no longer married to the idea that cheap Fed money will be fueling their actions. Instead participants must choose companies that have potential and strong numbers, which is what can be seen in the S&P 500. There are only a handful of companies that are still rising despite an overall market decline (Google, Amazon, Netflix, etc). In the oil sector the reasoning should be the same, companies with strong balance sheets, low costs and strong management will be rewarded and the rest left to fend for themselves. Indeed this has been the case as the WSJ reported that since last year’s oil decline, there have been a handful of oil companies that have thrived and their stock performance have been outstanding.


Dow Jones: 0.47%
S&P 500: 0.23%
Nasdaq: 0.44%

Economic Data
Weekly Jobless Claims: 282,000
Import Price Index: -0.2%
Total Non-Financial Borrowing: 2%

Chipotle’s CEO, Steve Ells, publicly apologized for the recent E. Coli and norovirus outbreaks that have been reported in certain parts of the country. His sincere apology to his customers and reaffirmation that quality and safety will always be a key priority sent stocks soaring 5%.

DuPont, Dow and the Fed

DuPont, Dow and the Fed

The announcement that Dow Chemicals and DuPont are in advanced negotiations to merge helped move the markets to the upside early this morning. DuPont, being a component of the Dow Jones Index, helped propel the index to a 200 point gain in mid-morning trading with the S&P 500 following suit with a 20 point gain. The Nasdaq trailed both indices, failing to break into positive territory for the day and ending the day down ~1.5%. Stocks also advanced early this morning ahead of the EIA weekly oil report.  The report was mixed, showing that production of gasoline and distillates had increased last week amid a 3.6 million drawdown in crude oil. Distillate fuels, the category of products which include diesel fuel and heating fuel, saw an increase of 5 million barrels. This large increase in distillates can be attributed to a warmer than expected winter, brought on by the El Nińo phenomena. Traders sent oil prices to a high of $38.99 minutes after the report was released before beginning a decline for the rest of the day. As oil started its descent, so too did the indices. From its day high, the Dow Jones plummeted over 350 points to a day low of 17,404. As the day progressed, the Dow managed to cut some of its losses, finishing down only 75 points from yesterday’s close and buoyed mostly by DuPont’s near 12% gain for the day. The S&P 500 was dragged down mostly by the financial services and tech sectors despite a gain in the materials and energy sector.

Dow Jones: -0.43%
S&P 500: -0.77%
Nasdaq: -1.48%

Economic Data
Wholesale Inventories: -0.1%

Extra Extra
Future federal funds rate, which tells how likely the market is betting that the Fed will raise rates, currently stands at 87%. Market participants appear to have heeded Yellen’s signals, during her recent appearances in the previous weeks, that the interest rate will indeed be increased before the year’s end. Ahead of the rate hike, bond yields have been increasing as investors and traders sell bonds. Prices and yields move inversely as a higher interest rate would make any outstanding bonds less appealing. Despite the equities market’s recent decline, on average the stock market has performed relatively well the first year after the initial rate hike. The pace of subsequent rate hikes will determine whether participants shift from the stock market to the debt markets. The Fed has assured that the pace of increases will be “gradual” and data-dependent.