China rate cut, dovish ECB to drive markets
THE US Federal Reserve's Open Market Committee's next meeting will be held on Tuesday and Wednesday this week, and going by the actions of central banks in China and Europe last week, no rate hike looks to be forthcoming. This will fuel the rebound in the major indices from their end-August lows and reinforce the notion that markets have reverted to the "bad news is good news" mode of investing.
The "bad news" theme has been a common thread in this column for a few weeks. It was also the subject of DBS Bank's Asian Insights report last week, in which the bank's chief investment officer, Lim Say Boon, noted that in the US, core personal consumption expenditure inflation has been trending down since its 2012 peak and is way below the Fed's target of 2 per cent.
"It is currently running at 1.3 per cent. Meanwhile, the external environment has worried the Fed - in particular, the economic growth deceleration in China," wrote Mr Lim. "Given the lack of a domestic driver for urgent rates action and uncertainty on the external front, the safest thing to do is nothing. And that's the market's view too."
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