Six Major Shocks To The Fed'S Interest Rate Hike

Although this topic has been said to be rotten, but in the light of the three principles of important things, we have summarized the impact of the Fed's interest rate raising on the asset market, after all, September FOMC is in today and tomorrow.

At the moment, the veteran Wall Street veterans are also trapped in decades of rare disagreements, whether the Fed raises interest rates or raises interest rates.

After all, the first increase in interest rates in the past ten years will set off a storm in a series of asset markets such as gold, foreign exchange, stock market, crude oil and bonds.

Even if the Fed decides to postpone raising interest rates, different statements and signals will have a profound impact on the trend of major markets.

The following are six asset classes that economists and strategists believe will be widely affected by the Fed's decision this week:

In the Tuesday report, bank analysts wrote that for short-term treasury bonds, "raising interest rates" could be a shock, especially for the 1-3 year treasury bonds, which are most sensitive to changes in the federal funds rate.

As for the yield of the ten year treasury bond, Ian Lyngen, a senior interest rate strategist at CRT capital group, said in its report on Monday that it was "in the middle of the vibration interval in the past few weeks".

In fact, the yield has also been hovering near the middle track of the trading area in the past year.

According to Chi Chi's data, the market expects a 25% chance that the Federal Reserve will raise interest rates this week.

In a report released last Sunday, HSBC fixed income strategist said there would be three situations in the yield of the 10 year treasury bond:

The Fed does not raise interest rates and continues to say that raising interest rates depends on economic data: This is the most dovish situation, but this has largely been priced.

The yield of ten - year treasury bonds should be 2.1%-2.2%.

Without raising interest rates, a partial signal is suggested to raise interest rates in December: the yield of ten - year treasury bonds should be 2.2%-2.3%.

Raise interest rates, but release all faction signals to control long-term returns: this will surprise investors, so the pigeon signal will be far less than the expected rate hike.

The yield on the ten - year treasury bond will go up to 2.4%.

The market ushered in the Federal Reserve meeting in September.

The term structure of the VIX, known as the panic index, has been upside down (at VIX higher than the 3 month period), 17 days, the longest period since 2011, when the US rating was downgraded, resulting in a sharp rise in uncertainty.

Moreover, most of the time, the discount rate was larger than it was then.

If the Fed decided Thursday to raise interest rates by 25 basis points,

It may be seen as having confidence in the US economic recovery and thus boosting the stock market.

Or they may understand that the end of the era of cheap money will sell stocks.

The Fed can wait until October, December or even next year to raise interest rates, but the market may also understand its lack of confidence in the US economy.

Worse still, postponing raising interest rates may damage the credibility of the Fed.

"By raising interest rates this week, the Fed can give some certainty and confidence to the market, but any positive reaction in the market will be temporary," said Bruce McCain, chief investment strategist at Key Private Bank.

"Investors will quickly start thinking about the next step of the Fed, which is like the first time.

The same is true of uncertainty.

In May 2013, then fed chairman Bernanke suggested that the scale of QE purchases would be cut down, and then the so-called "taper tantrum" broke out. As the yield of US Treasury bonds rose sharply, the emerging market currencies would depreciate sharply.

But Weller warned that this time it might be different.

"Currencies such as Turkey lira, Brazil Real and South African rand, which have large deficits in their current account, may be particularly vulnerable because they rely heavily on foreign investment."

Weller says.

Meanwhile, currencies such as Thailand and Russia with large current account surplus will not be so vulnerable to changes in Fed policy, Weller said.

Gross

The currency is weak this year.

But if the Fed hints at a delay in raising interest rates, they may be able to catch their breath.

Blogger Charles Hugh Smith of Of Two Minds, the US financial blogger, also pointed out that with the appreciation of the US dollar against emerging market currencies, a self reinforcing cycle came into being: the higher the US dollar, the more capital outflows from emerging markets, which further depressed the emerging market currencies, leading to the sell-off of the assets in the emerging market stock market, bond market and real estate with depreciated currencies.

"If the Fed sends a dove signal on Thursday, it could help stimulate the stock market and strike the US dollar," Fawad Razaqzada, a technology analyst at Forex.com, wrote in a report on Monday.

In this case, "gold may benefit, because a longer interest rate will reduce the relative opportunity cost of holding gold."

He said.

However, "the risk preference that may result from this rally will mean that investors will reduce their concerns about gold and invest more tradable funds into the stock market."

On the other hand, if the Fed decides to send more hawkish signals, including interest rate hikes, "this may constitute a support for the US dollar against the gold in the stock market and the US dollar."

Razaqzada says.

Therefore, in these two cases, "the rising space of gold appears to be limited unless the stock market and the US dollar have fallen sharply."

In a report to clients, Canadian forklift bank's foreign exchange strategist said that even if the Federal Reserve raised interest rates on Thursday, dovish remarks from its policymakers might also prevent further appreciation of the dollar.

But most of the big agencies, including the Bank of abundance, say that the dollar will continue to rise by the end of this year.

"Although the risk aversion caused by the unexpected increase in interest rates may support the euro / dollar and yen in the short term, we continue to believe that the US dollar will continue to rise to the wider currency by the end of 2016 and the central bank, because the central bank's monetary policy is still divided."

The strategist of Feng Ye bank wrote.

Foreign exchange strategist of Bank of America, Merrill Lynch and Goldman Sachs expects that the US dollar will be parity with the euro at the end of the year.