Tanguy Le Saout, head of European Fixed Income, looks back at the recent Fed decision and its consequences for the Euro, comments on the UK Labour party elections, and look at possible implications on sovereign spreads of the current crisis within the European Union.
- Over to you, Mario
Here in Dublin, the European investment-grade fixed income team must confess to being a bit confused. Some time ago, Stanley Fischer (vice-chairman of the US Federal Reserve) indicated that the Fed would set US interest rates based on what was happening in the domestic US economy, and basically told developing markets to get used to it.
But last week Janet Yellen (Chairperson of the Fed) told us that US interest rates had been left unchanged due to, amongst other things, “recent global economic and financial developments that may restrain economic activity” – a clear reference to China. And while markets tried to digest this new focus, the euro continued to strengthen. This was not in ECB President, Mario Draghi’s “European QE game plan”.
Did the Fed just join the global currency war by devaluing the US Dollar? And what happens if the euro’s recent strength continues and the euro appreciates towards 1.20 against the US Dollar? One can’t help wondering if QE2 in Europe moved up on the ECB’s agenda.
- Politics (again)
The election of Jeremy Corbyn as leader of the UK Labour party was greeted with a mixture of amusement, incredulity and some dismay by market participants last week. Amusement because his policies appear to be a throwback to the 1970’s/1980’s era of “democratic socialism”.
Incredulity because Corbyn garnered over 250,000 votes, and in the process won the most votes in a party leadership election in British political history.