Blog: Spirit of Money, Financial Fluidity
by munificent

EU vs. $$ & Others

~9th included here:currency strength, mid 2006-stockmarket takes off, and I will win the Miss America Contest in the bathingsuit category! Yes, well who knows...heheheh-not

Date:   11/17/2005 7:42:20 PM   ( 16 y ) ... viewed 1679 times

By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - The end of the Federal Reserve's rate tightening cycle, when it comes, is shaping up to be a tipping point for big money investors, possibly boosting U.S. stocks, and easing pressure on bonds.

It could also reignite the dollar's decline by removing one of the main reasons for its recent strength.

All three moves would have significant impacts on investment in Europe and elsewhere, with a stronger euro hurting euro zone company competitiveness and more attractive U.S. assets draining domestic and foreign money from abroad.

Some appetite for U.S. assets has already been rekindled this month, although for the most part large investors are still keeping their exposure to U.S. stocks and bonds relatively low.

In its latest fund manager survey, for example, investment bank Merrill Lynch found that global investors are clearly bullish about equities as a whole but that a significant majority is negative about U.S. stocks.

The S&P 500 has gained around 1.5 percent in the year to date compared with nearly 18 percent for Europe's FTSEurofirst 500 and even more in Japan.

But the same survey -- noting that "the darkest hour is before the dawn" -- suggested that some investors were gearing up for a return to U.S. markets.

It reported a jump for the second month in a row in the number of investors who say they are planning to add exposure to U.S. equities.

In a similar vein, Reuters asset allocation poll taken at the end of October showed U.S. and continental investors raising their holdings of U.S. stocks and bonds.

All this has been reflected on financial markets. In the month to date, it is the previously poor-performing Nasdaq that has been a leader among major stock indexes, racking up around 3.5 percent in gains compared with some 2 percent for the FTSEurofirst and 2.2 percent for Japan's Nikkei
The spread between yields on the 10-year Treasury bond yield and the Bund has tightened in the month, with the latter underperforming.

The dollar has galloped ahead, leaving the euro down nearly 3 percent.


It remains to be seen whether this mini-love affair with U.S. assets -- perhaps simply a reaction to the poor performances in October -- continues.

But there is little doubt that the eventual ending of the Fed's tightening cycle -- generally expected in the middle of next year -- will have a significant impact on investor strategies on a host of investments.

U.S. equities, for example, could get a fillip once the headwinds of higher rates dissipate.

"Long term, we are bullish (on U.S. equities) because earnings prospects are solid and we expect the Fed will complete its tightening program between 4.50 percent and 4.75 percent by mid-2006," wealth manager Citigroup Private Bank told its clients this week.

"Stocks historically tend to perform well once the Fed stop raising rates."

But the caveat from the bank and others is that it all depends on why the Fed stops hiking. If it is because inflation is benign as growth continues, then equities should benefit.

If, on the other hand, the Fed is forced to stop because of slumping growth, stocks would become buffetted by new headwinds.

The dynamic facing U.S. Treasuries would also change, with a Fed halt, particularly if inflation is under control.

Bond yields have backed up in the cycle to more than 4.5 percent, making them at the very least a better deal than they were, even if they may still present investment risks.
"Value is starting to return in the market but yields have the scope to go higher," said David Shairp, global strategist at JP Morgan Asset Management. "There is a lot less downside to the U.S. bond market than there was three or four months ago."

The impact on U.S. bonds of the end of Fed tightening could be exacerbated if, as expected, the European Central Bank begins its own policy of raising rates.

Bond investors could jump from the euro zone to the United States, as recent yield performances have suggested.


The dollar, meanwhile, has been rising sharply against many major currencies, particularly the euro, after a three year tumble. The spurt is widely put down to the rate differential between the United States and the euro zone, currently two percentage points.

That would change if the Fed stopped hiking and the ECB began, although the spread is likely to widen before this point is reached.

Most significantly, many investors argue that the differential is a cyclical factor that is masking fundamental structural imbalances that should weaken the dollar, notably the large U.S. current account deficit.

The mask could be removed at the end-of-tightening point.

Recent Reuters polls of both fund managers and currency strategists, for example, indicated that expectations were high that the dollar will begin to weaken again against the euro next year as the Fed stops raising rates.

"The end of the tightening cycle will bring fundamentals back into play," said Klaus Wiener, chief economist at AMB Generali Asset Managers.

The rub would be that this could boost U.S. competitiveness and weigh on the euro zone just as the latter was facing its own shift in monetary policy.

Add This Entry To Your CureZone Favorites!

Print this page
Email this page
DISCLAIMER / WARNING   Alert Webmaster

CureZone Newsletter is distributed in partnership with

Contact Us - Advertise - Stats

Copyright 1999 - 2021

0.141 sec, (2)

Back to blog!
Add Blog To Favorites!
Add This Entry To Favorites!

Comments (20 of 48):
Thanks for your in… kermi… 15 y
I wonder about wom… 9thbo… 15 y
everybody knows... drofin… 15 y
Taiwan/China Next? Rikki-… 15 y
I am sorry to hear… 9thbo… 16 y
Re: I have a retir… #4933… 16 y
Nope, I don't make… 9thbo… 16 y
commercial pitch mark777 16 y
oh well... drofinnah 16 y
Yes this may well … kermi… 16 y
First hand experie… 9thbo… 16 y
Depends on age/ris… 9thbo… 16 y
10% of portfolio i… #1923… 16 y
Hi K-! Hope all i… 9thbo… 16 y
WOW who would thin… kermi… 16 y
LOL! I love Motley… JeSui… 16 y
Perhps, my experie… 9thbo… 16 y
I have a retiremen… oztin 16 y
Re: Sorry Kerme, I… kermi… 16 y
very good, but som… 9thbo… 16 y
All Comments (48)

Blog Entries (12 of 249):
EU vs. $$ & Others  16 y
Bonds/Corp Credit Worthiness  16 y
Pension Reform  16 y
Pensions on Balance Sheet  16 y
Bernanke/Bush  16 y
short term rising long term…  16 y
Reform=not paying?  16 y
70M embezzled?  16 y
IRS-Good to Know  16 y
Pension Liabilities  16 y
Motley Fool triggers  16 y
Fannie Mae-Error10.8B?  16 y
All Entries (249)

Blogs by munificent (10):
Yoga Path  15 y  (396)
Cold Water Blog  15 y  (269)
Quantum Intelligensia  15 y  (267)
Leadership  15 y  (67)
BaBaGee Blog  15 y  (16)
Breathwork  16 y  (16)
Desire  15 y  (5)
Sacred Sex  15 y  (4)
Apothegm  15 y  (3)
Breathwork for wholeness  16 y  (3)

Similar Blogs (10 of 185):
My Unusual Road of …  by kerminator  15 h
Advices and tips on…  by Law Offices  20 h
Absolute Truth Some…  by Kerminator  3 mon
David Sanderson’ Ul…  by manifestation11  4 mon
Five steps on how t…  by drawmoney7  4 mon
willson 456  by kaviharshu99  6 mon
Mobile Notary  by mobile-notary  10 mon
Chef Jemichel ~ The…  by chef jem  10 mon
asinglemomstory  by loknathtechtro  12 mon
The Whey, The Truth…  by Chef JeM  13 mon
All Blogs (1,019)

Back to blog!

Clark Kidney Cleanse
Dr. Hulda Clark’s Kidney Cleanse with purest products! Great pric...

Natural Cancer Remedies
Cancer-proof your body with little known immune boosters!

Natural, Soothing, Progesterone Oil
Supplementation and Hormone Balancing Based on the...

Kidney Cleanse
Hulda Clark Cleanses

Lugol’s Iodine Free S&H
J.Crow’s® Lugol’s Iodine Solution. Restore lost reserves.