Fed commentary remains broadly supportive of risky assets

THE Federal Reserve has raised US interest rates by 0.25 per cent, in line with expectations. With the median FOMC participant now expecting three rate hikes next year (from two previously), and Fed chairwoman Janet Yellen sounding some caution over whether fiscal stimulus is necessary to reduce unemployment further, the market has interpreted the move as modestly hawkish, with equity and bond prices falling and the US dollar rallying modestly.

But we believe the commentary from the Fed remains broadly supportive for risky assets and interpret the move as a "neutral hike" that reflects the improvement in the US economy.

Inflation forecasts remain unchanged, Ms Yellen reiterated that policy remains accommodative, and that the "neutral" level of the Fed funds rate is low. We maintain our risk-on stance, with overweight positions in US equities and euro high yield credit. We keep our overweight position in the euro relative to the US dollar. Additionally we reiterate our overweight position in emerging market equities versus Swiss stocks.