Markets rebound as Fed cools on early rate rises

Roman Schwartz
November 29, 2018

The Australian dollar surged on Wednesday as doubts about the pace of rate hikes from the US Federal Reserve resurfaced.

In New Zealand, the latest ANZ business confidence report for November will also be released at 11am AEDT.

The dollar weakened, which sent metals prices higher. Investors had been anxious that too many rate hikes at too fast a pace would raise the cost of borrowing across the board, from mortgages to auto loans. He added that he believes lenders would weather any widespread failures of debt-laden businesses, while investors in securitized loans might not be as lucky.

The news in the Fed report wasn't all bad.

The report noted several signs of resilience in the financial system to the sorts of unexpected shocks that might arise, including the strong capital position of banks, generally tempered borrowing by households and a system less vulnerable to the sorts of runs or credit crunches that almost shut down the global economy in the 2007-to-2009 financial crisis.

"My own assessment is that, while risks are above normal in some areas and below normal in others, overall financial stability vulnerabilities are at a moderate level", he said.

Tokyo's Nikkei 225 rose 0.4 percent to 22,262.50 and Sydney's S&P-ASX 200 added 0.6 percent to 5,758.40. -China trade war to doubts about lofty valuations of technology shares.

Mr Trump added: "I'm not happy with what he [Mr Powell] is doing at nearly looks like he's happy raising interest rates".

The fed fund futures contract expiring in January 2020, a heavily traded contract that reflects market expectations for where rates will be at the end of 2019, rallied sharply on record volume. Not only are debt levels high, but there are concerns of deteriorating credit standards, on top of weaker earnings and higher leverage.

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Leveraged loans are most often packaged, or securitized, into so-called collateralized loan obligations, or CLOs.

He said of Mr Greenspan, who had originally been appointed by Ronald Reagan in 1987: "I reappointed him and he disappointed me".

And, when presidents do criticise the Fed, they only tend to do it once they have left office. Leveraged trading is high risk and not suitable for all.

And he said the financial system was now "substantially more resilient" than it was before the 2008 financial crisis.

And heightened trade tensions might lead to financial turbulence in China that could spill over into the USA, the Fed said. Chinese economic growth has slowed since the government clamped down on bank lending previous year as part of an effort to rein in surging debt. But what's more likely is that the Fed will irritate the President further before it's done.

Last month, he had said the bank had a "long way" to go before reaching that level.

They both gained 1.2 per cent after Powell's remarks.

No Fed chairman has ever been removed by a president. The Fed board is expected to consider the matter in January.

The Bank of England warned on Wednesday that Britain risked a bigger hit to its economy than it suffered from the global financial crisis a decade ago if it leaves the European Union in a "disorderly" manner, which would include a 25 per cent crash in the value of the pound.

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