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    Global Macro Commentary September 23

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    dpbasic
    - NY Fed President Dudley signaled a willingness to raise interest rates to limit risks from being at zero lower bound for too long and hurting savers. Other FOMC members are also changing their messaging around the timing of rate hikes. - Financial markets are becoming unstable due to shifting central bank policies, geopolitical tensions, and rising nationalism. A larger market reaction is likely as the Fed's policy transition approaches. - The strengthening US dollar is impacting commodities and emerging markets, which could lead to further economic headwinds globally as the world moves away from zero interest rate policies.

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    Global Macro Commentary September 23

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    dpbasic
    33 views2 pages
    - NY Fed President Dudley signaled a willingness to raise interest rates to limit risks from being at zero lower bound for too long and hurting savers. Other FOMC members are also changing their messaging around the timing of rate hikes. - Financial markets are becoming unstable due to shifting central bank policies, geopolitical tensions, and rising nationalism. A larger market reaction is likely as the Fed's policy transition approaches. - The strengthening US dollar is impacting commodities and emerging markets, which could lead to further economic headwinds globally as the world moves away from zero interest rate policies.

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    by Guy Haselmann, Director, Capital Markets Strategy, Scotiabank GBM

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    - NY Fed President Dudley signaled a willingness to raise interest rates to limit risks from being at zero lower bound for too long and hurting savers. Other FOMC members are also changing their messaging around the timing of rate hikes. - Financial markets are becoming unstable due to shifting central bank policies, geopolitical tensions, and rising nationalism. A larger market reaction is likely as the Fed's policy transition approaches. - The strengthening US dollar is impacting commodities and emerging markets, which could lead to further economic headwinds globally as the world moves away from zero interest rate policies.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    33 views2 pages

    Global Macro Commentary September 23

    Uploaded by

    dpbasic
    - NY Fed President Dudley signaled a willingness to raise interest rates to limit risks from being at zero lower bound for too long and hurting savers. Other FOMC members are also changing their messaging around the timing of rate hikes. - Financial markets are becoming unstable due to shifting central bank policies, geopolitical tensions, and rising nationalism. A larger market reaction is likely as the Fed's policy transition approaches. - The strengthening US dollar is impacting commodities and emerging markets, which could lead to further economic headwinds globally as the world moves away from zero interest rate policies.

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    © All Rights Reserved
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    of 2

    Global Macro Commentary

    Ticking Away
    Tuesday, September 23, 2014
    Guy Haselmann
    (212) 225-6686
    Director, Capital Markets Strategy

    John Zawada
    Director, US Rate Sales



    Ticking Away
    In a switch from what are typically only one-sidedly dovish comments, NY Fed
    President Dudley was balanced yesterday, even citing reasons for why the Fed would
    want to hike rates.
    Dudley stated that being at the zero-lower-bound is not a very comfortable place to
    be, because it limits flexibility and has consequences for the economy. He said it
    hurts savers, and while acknowledging what is happening to financial markets, he
    avoided directly citing risks to financial stability. Anxiety-riddled conversations about
    financial instability are probably implicitly restricted to a behind-closed-doors-only
    rule.
    FOMC members are slowly and carefully trying to change the conversation. Yellen
    completely diluted away any meaning behind considerable period to make it all but
    meaningless. Bullard said to that he still sees the first tightening at the end of the first
    quarter.
    A March 18
    th
    hike seems reasonable to me, since US economic improvement appears
    to remain on track (at least for the moment) and since the FOMC seems more anxious
    to begin the normalization process. Actually though, by waiting even until March, it
    is possible that the FOMC risks missing its window of opportunity in terms of using
    US economic momentum as its cover (what irony).
    Financial markets are becoming agitated and disturbed by shifting government and
    central bank policies, mounting geo-political tensions, and rising nationalist fervor.
    QE has not yet ended and the Fed is likely still months away from hiking for the first
    time, but markets are using these factors to adjust portfolio exposures. These are hints
    that a larger market reaction is likely to unfold as the Feds policy transition
    approaches.
    Macro signs are currently evident with steep commodity price declines, rising FX
    volatility, rallying global bond markets (long end), and sagging prices for low quality
    credits. Some investors are clearly getting out of the Fed-generated herd trades of
    recent years and saying that they are doing so because the Feds balance sheet is set to
    stop expanding next month.
    The strengthening dollar is one consequence and it has already had an impact on
    commodities and Emerging Markets. In turn, weakening currencies in EM countries
    are starting to trigger capital outflows. It may lead toward domestic central bank hikes
    (again) which weaken those economies and cause second-order effects.
    The prolonged period of zero rates has enabled many EM-based corporations to issue
    debt in USD, so a weakening currency raises their liabilities and lowers the value of
    their assets. Such a dynamic was a source of past crises.
    Any anti-globalization actions, such as protectionism, will further act as global
    economic headwinds. Nationalistic momentum could become disruptive via social
    unrest, or via surprises in the voting booth. Extreme nationalist parties continue to gain
    in popularity in numerous European countries. Religious, ethnic and tribal conflicts are
    spilling across borders. Putins annexation of Crimea was a bold nationalistic action
    that hid behind a veil of protecting Russian speakers. China, J apan and India all have
    new nationalistic leaders who use patriotic jargon to spur structural and economic
    reform.
    For investors, Fed stimulus has trumped all other factors. It has lowered risk premia
    and inflated asset prices. The gig is soon up, but investors have yet to adequately
    adjust. Unfortunately, they will attempt to do so with significantly compromised
    market liquidity. The path to normalization is made even more challenging, because
    J apan and Europe are in recession, and China is slowing.
    Note: Pentagon comments today about foiling an imminent attack was negative for
    risk assets as are Treasury Department efforts to clampdown on inversion.
    I maintain that one of the best places to hide remains in 30-year Treasury bonds.
    No one told you when to run, you missed the starting gun. - Pink Floyd
    FOMC Speeches
    9/24 Mester 12:15 PM
    9/24 Evans 1:00 PM
    9/25 Lockhart 1:20 PM
    9/28 Bernanke 12:15 PM
    9/29 Evans 9:00 AM





    Key Events
    ECB OCT 2
    RBA OCT 6
    BoJ OCT 7
    BoE OCT 9
    FOMC OCT 29

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    Disclaimer

    This publication has been prepared for Major U.S. Institutional Investors by Fixed Income Strategists of the Bank of Nova Scotia, New York
    Agency. (BNS/NYA). BNS/NYA Fixed Income Strategists are employees of Scotiabanks Fixed Income Credit Sales & Trading Desk and
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    Income Strategists in this and other reports may differ fromthe views expressed by other departments, including the Research Department, of
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