Global weekly: Know when to hold ‘em

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The September meeting of the US central bank came and went yesterday, with no change in interest rates. This decision added support for stocks, bonds and gold, but was negative for the US dollar, as markets scaled back rate-hike expectations.

Lift-off did not occur. The US Federal Reserve kept interest rates on hold at their much anticipated September meeting. Although the US economy is seen as strong and the labor market has improved, the Fed policymakers are concerned about the impact of global developments on US growth. Since July, there has been a stock-market sell-off, the dollar has appreciated and financial conditions have tightened. There is concern over how these events will impact the US economy and if there is downward pressure on inflation.

Fed Chair Janet Yellen noted that a rate hike is still possible at “every remaining meeting” this year. We believe that October will be too early and expect a December rate hike, as global risks ease and the US economy continues to recover.

After the Fed’s meeting, emerging-markets equities reacted in relief to the deferred rate hike. This was contrary to the Japanese and European markets, where the potential of a strengthening US dollar negatively affected market sentiment. US equities gave up their gains and closed with a decline for the day.

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