US Fed move to help stabilise global market

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US Fed move to help stabilise global market
Naeem Aslam, Chief Market Analyst, AvaTrade during an interview with Khaleej Times on Sunday, 06 September 2015.

Dubai - Naeem Aslam, chief market analyst at AVATrade, said the Fed kept the rate unchanged due to a sluggish global economy, financial market volatility and slow inflation at home.

By Muzaffar Rizvi

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Published: Sun 20 Sep 2015, 12:00 AM

Last updated: Sun 20 Sep 2015, 9:51 AM

The US Federal Reserve's decision to keep its interest rate at historic lows until its next meeting in December will help stabilise the global markets and strengthen growth trend in US economy, says an expert.  
Naeem Aslam, chief market analyst at AVATrade, said the Fed kept the rate unchanged due to a sluggish global economy, financial market volatility and slow inflation at home.
"We had been saying this very blatantly: do not take a September rate hike off the table. With the yuan's devaluation and falling oil prices, we said 'filter the noise'; do not pay much attention to these," Aslam told Khaleej Times during his recent visit to Dubai.
He pointed out that if there was any reason the Fed should raise rates, it is the fact that the country's labour market is growing steadily, and "that doesn't warrant the Fed keeping the rates low".
He said the Fed is currently in an indecisive mood on deciding on key interest rates because of its impact on domestic and international economies.
With the economy of the United States gaining steam in recent months, there was some consensus that the US central bank will finally pull the trigger - until China on August 12 rocked world markets by devaluating its yuan, a move that ratcheted volatility was widely seen as possibly freezing any of the Fed's immediate plans.
He said surveys of various entities have then shown a decline in expectations for a September rate hike; the Fed is scheduled to meet next in December .
"The People's Bank of China did not telegraph their message clearly [when it devaluated the yuan], which clearly added volatility into the markets," Aslam said.
He also pointed out that at the recent meeting of the Group of 20, leaders pledged that they will do whatever it costs to support global economic growth.
Aslam cited the example of European Central Bank President Mario Draghi, who assured more quantitative easing, should it be needed.
This, Aslam says, boosts the Fed's confidence to do what it thinks it needs to be done.
As far as the UAE is concerned, he stressed that Fed move is unlikely to have any major impact on the market.
"There will be plenty of opportunities for the UAE market as the valuations are attractive," he said, adding that this would also be the case in Europe and some emerging markets.
 Oil price
Aslam said that the price of crude oil is unlikely to fall below $30 per barrel, but it could slide to the "early handles of $30".
He also added that should oil drop below $30, Opec kingpin Saudi Arabia will have a cushion to handle it - though it would struggle with its budget deficit. The effect on non-Opec member Russia, on the other hand, will be worse; such an event would cause a heavy hit on the country, as well as a ripple effect.
"This again brings into question whether the Fed would increase interest rates if the price of oil stays below $40," Aslam said.
"The answer: it could, because this would only affect the front end of the curve when it comes to inflation," he added, pointing out that wage growth in the US is on the rise, with consumers "saving less and spending more; that would break into the inflation equation".
- muzaffarrizvi@khaleejtimes.com


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