Tags: Carlo Padoan | Michelle-Caruso-Cabrera | ECB | Federal Reserve

Italians Not Worried About Rate Rise, but Markets Are Restless

By    |   Wednesday, 10 June 2015 08:17 AM

Italian Finance Minister Carlo Padoan told CNBC’s Michelle Caruso-Cabrera that Italy welcomes a move to higher interest rates that would provide “more profit opportunities for long-term investors.”

He offered “an optimistic view that maybe we are going back to more normal times.”

Asked if he is concerned about the rapid unwinding of trades based on low rates, Padoan told CNBC that, “We have seen volatility, as we all know. Volatility is like a bump in the road when you’re driving a fast car. But also, I would point out that liquidity is abundant.”

And he cited continued support by the ECB. This writer would add that traders relish a volatile environment, and central bank support, through the “Yellen put,” emboldens traders.

Meanwhile, John Humphrey, SVP of JD Power & Associates, addressed recent persistent rumors that GM is working on a merger, perhaps with Fiat Chrysler.

He said that after restructuring, both companies “are poised to do well going forward,” but he sees GM as a global company and Fiat as lacking that scale. The other issue is technology, “too much fragmentation in power trains,” and the companies are motivated to cut R&D costs in this area.

Looking five years ahead, as the internal combustion engine is benefiting from lower fuel prices, new players like Google and Tesla are entering the field, and companies are looking for partners to cut costs.

Next, JJ Kinahan, Managing Director at TD Ameritrade, sees the S&P as “range bound” and looks to the Federal Reserve to give the market “a definite date in which they’re raising rates” to break this pattern where people continue to trade on “the news of the day.”

He added, “Everyone wants to see something so badly that these smaller numbers intraday are taking more value than they would normally, and it’s one of the reasons we have seen some good intraday volatility over the last couple of weeks, but overall we’ve been in a very tight range.”

So here is the perspective of a trader who is comfortable with volatility and restless without it.

He concluded that if the Fed provides a date traders “would trade on the things we should be trading on and not hanging on some of these smaller numbers that aren’t as significant as we’re making them to be.”

This writer suspects that the Fed will not provide this satisfaction, but instead the range will be broken by some anticipated market event.

Finally, Steven Englander, a Forex strategist at Citi, expects a rate hike as soon as September and not next year, because, “the data has come back a lot faster than anyone expected.”

He cited evidence of labor shortages at the low end and wage increases, and he thinks the Fed wants to move above zero rates. An interviewer referred to a comment by former Philly Fed President Charles Plosser that the Fed would prefer “a smaller remit” more like that of the ECB.

This writer would challenge that notion, given that the Fed’s mandate seems to have grown to at least 10.

So from a cynical point of view, the Fed wants to be seen as reluctant to expand its turf, even as it aggressively pursues its interventions deep into uncharted territory.

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So from a cynical point of view, the Fed wants to be seen as reluctant to expand its turf, even as it aggressively pursues its interventions deep into uncharted territory.
Carlo Padoan, Michelle-Caruso-Cabrera, ECB, Federal Reserve
Wednesday, 10 June 2015 08:17 AM
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