Tags: Concerns | Fed | Rate Hike | Trade Deal

Concerns About Fed Rate Hike, Trade Deal

By    |   Monday, 03 August 2015 08:20 AM

Nathan Bell, head of research at Peters Macgregor Capital Management, asks whether the Fed is likely to raise rates faster and farther than the market now expects, and he finds, “I just don’t see how that’s going to happen.”

Bell told CNBC: “If a one-quarter percent increase after all these years is going to cause any damage, then we’ve probably got things to worry about.” (Well, yeah.)

He agrees with Susan that a hike would be good for banks, and he recommends Wells Fargo (WFC) and Bank of America (BAC) in the U.S. and Lloyd’s (LYG) and Royal Bank of Scotland (RBS) in the UK. Bell wants to see wages rising in the U.S. and workers buying 50% more homes.

Asked why such a “teeny” increase would help the banks, Bell replied that he is looking over a three-year cycle, and an increase over that time of 3% “is going to be gravy for the banks.”

He has bought into the industry complaint that the financial regulators in the U.S. and U.K “have been using banks as a bit of a punching bag” and bank earnings will benefit when this ends.

As for whether the first hike will occur in September, as many pundits expect (amazingly, there’s also a “one and done” school that thinks this symbolic move will be enough for a while), Ray Attrill, a foreign-exchange strategist at National Australia Bank, thinks that a weak employment cost number on Friday casts doubt on that scenario.

He cites a comment by James Bullard, president of the St. Louis Fed, as insisting that the FOMC is still “in good shape” for a September hike.

This writer recalls that Bullard said this past spring that the Fed should have acted last October, and Bullard is not a hawk in the tradition of his predecessors in St. Louis.

Attrill added that he thinks the Forex market has priced in a September hike but the bond market has not. He pronounced himself as “nervous” that capital flight could occur from emerging markets in reaction to a rate hike, because it hasn’t happened yet. (Maybe these markets aren’t convinced the Fed will move.)

Attrill attributes weakness and shorting of Mexican pesos and other currencies of emerging and commodity-export countries to weakness in oil prices rather than expectation of Fed action.)

There was a slot here for remarks of a commentator who might have been the first beside this writer to bring election-year politics into the discussion of Fed action, but he said the opposite, that the market is satisfied with what Chair Yellen is saying and not concerned about the politics.

Next, Professor Eswar Prasad of Cornell talks about reports of a snag in the protracted negotiations over the Trans-Pacific Partnership (TPP) now that the Republican Congress has granted Fast Track authority to the administration.

He said “a tremendous amount of progress has been made” on big issues like market access, but “stumbling blocks” have developed over small issues with strong political constituencies behind them.

When an interviewer raised the prospect that this legacy issue for Obama “could wind down into nothing,” Prasad made the case that TPP is important as a way of curbing the growing influence of China in Asia.

This writer would ask how persuasive this argument will be if the Chinese economy continues to struggle.

Finally, the Fast Money traders looked at an array of assets from the standpoint of how safe it is to own them.

Melissa Lee asked whether investors might “hide out” in stocks from weakness in commodities and currencies, but Brian Kelly warns that an unwinding of the “carry trade” in currencies in response to the oil price decline will ultimately hurt U.S. stocks.

Guy Adami countered that before this would happen he thinks stocks will “continue to grind higher.”

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Robert-Feinberg
Nathan Bell, Head of Research at Peters Macgregor Capital Management, asks whether the Fed is likely to raise rates faster and farther than the market now expects, and he finds, "I just don't see how that's going to happen."
Concerns, Fed, Rate Hike, Trade Deal
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2015-20-03
Monday, 03 August 2015 08:20 AM
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