Markets were largely unchanged in Europe as the Federal Reserve’s Federal Open Market Committee meeting commences in the U.S. today. Futures markets for Fed-funds rate contracts currently exhibit expectations for no hike announcement tomorrow, as investors wager that growth concerns in emerging markets will cause the Fed to wait until 2016 to begin tightening despite improving fundamentals at home. While the policy announcement is a driving factor for sentiment in global markets, the earnings announcement by technology stalwart Apple after the U.S. market closes today may prove to have a larger effect. Tech earnings have been a bright spot in the third-quarter earnings season so far.
U.K. GDP more sluggish than expected. Initial third-quarter GDP data released today by the Office for National Statistics indicates that the U.K. economy grew at a slower pace than economists anticipated. The headline GDP index expanded by an annualized 0.5 percent versus consensus forecasts of 0.6 percent and a reading of 0.7 percent for the second quarter.
ICE to acquire big data firm. The parent of the New York Stock Exchange, Atlanta-based Intercontinental Exchange Inc., yesterday announced the acquisition of Interactive Data Corp. in a transaction valued at $5.2 billion. Interactive Data, headquartered in Bedford, Massachusetts and owned in part by private equity firms Silver Lake and Warburg Pincus, provides data on corporate bond pricing for investors.
Another DuPont earnings miss. Wilmington, Delaware–based chemical and agribusiness giant DuPont today announced third-quarter financial results. The company posted earnings per share of $0.13 versus $0.54 during the same period in 2014. And revenues fell to under $5 billion as major agricultural markets such as Brazil declined significantly.
JPMorgan enters mobile pay market. Yesterday New York’s JPMorgan Chase & Co., the largest U.S. bank by assets, announced a deal with retail consortium Merchant Customer Exchange to offer a smartphone payment service called Chase Pay in participating stores. Needham, Massachusetts–based Merchant Customer Exchange handles payment processing for over 100,000 retail stores in the U.S.
Santos rejects buyout, sells assets. Adelaide, Australia-based natural-gas producer Santos announced yesterday it will sell a series of assets to Quadrant Energy, headquartered in Perth, Australia, for approximately $1.5 billion. The announcement comes on the heels of last week’s unsolicited $5.2 billion bid for Santos by private equity firm Scepter Partners, which the company’s board rejected.
Portfolio Perspective: Stop Obsessing Over the Fed Liftoff Date — Tina Byles Williams, FIS Group
The amount of airtime and ink that has been spilled to discuss the timing of the Fed rate hike would probably fill a major ocean with no more (and possibly less) clarity today than when such deliberations were at a trickle! Last quarter we argued that conditions in the U.S. did not warrant a near-zero Fed funds rate but we also stated that the timing of the Fed’s rate liftoff is less important than the terminal rate and the pace of normalization. The FOMC chose not to raise rates on September 17, primarily citing global conditions, and then, as if in remorse when the markets gapped down (because of perceptions that global conditions must be worse than expected), Chair Yellen and other FOMC members reiterated their intention to raise rates this year.
The median terminal rate predicted by the Fed is 3.5 percent by the end of 2017, well above market consensus of 2 percent to 2.5 percent. Should the pacing of Fed normalization exceed that of the market, risk assets will likely experience a nasty surprise. We reiterate our view that the important factor is the terminal rate, the pacing of interest rate hikes and the impact of both on asset prices that have been primarily buoyed by NIRP/ZIRP rates. The frantic global search for yield has in effect compressed investment hurdle rates. If hurdle rates rise with fed funds, lenders may become less willing to roll over maturing debt on easy terms. If so, hikes could roil covenant-lite bonds and, as previously discussed, EM credit markets that have housed the most dubious post-global financial crisis loans.
Tina Byles Williams is the CEO and CIO of FIS Group in Philadelphia.
