Wall Street declines as the US dollar surges more

Whether it's about forex movements versus earnings expectations, Japanese and European QE versus US Fed hikes, the net impact of lower oil prices between producers and consumers, temporary or structural deflation, whether to rein in government deficits slowly or quickly and whether the Apple new watch's 18 hour battery life is enough in a 24 hour time system, investor uncertainty is on the rise.

By InvestSMART · 16 Mar 2015

By InvestSMART ·
16 Mar 2015

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Markets and investors are very unsettled at present and there is a number of unresolved issues which are culminating in heightened volatility. Whether it's about forex movements versus earnings expectations, Japanese and European QE versus US Fed hikes, the net impact of lower oil prices between producers and consumers, temporary or structural deflation, whether to rein in government deficits slowly or quickly and whether the Apple new watch's 18 hour battery life is enough in a 24 hour time system, investor uncertainty is on the rise. At present QE seems to be trumping everything else and driving sharemarket performance, both absolute and relative. Although the FOMC is meeting this week and investors are expecting them to remove the 'patient' tag, I think currency movements are emerging as the key issue for 2015. Central banks in economies with weak output growth are in a race to lower their exchange rate to boost exports and consumer and investment through lower interest rates, whereas the UK and US are looking to tighten rate as their recoveries are sustainable. The key for the US Fed is the timing and whether they fear rising growth sparking inflation or rising rates choking off the recovery. US growth is going to be weak in the December March quarters and this is likely to deter the Fed from doing anything hasty and given that there is no inflation and no wages pressure at all, it is hard to see which one of their economic objectives are being threatened to warrant higher rates. I think they can afford to wait, but I seem to have the minority opinion on that one and if they go early recent currency and sharemarket trends will continue, as sure as night follows day.

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Frequently Asked Questions about this Article…

Why is the US dollar surging and how does it affect Wall Street?

The US dollar is surging due to central banks in economies with weak output growth lowering their exchange rates to boost exports. This impacts Wall Street as currency movements are becoming a key issue, influencing sharemarket performance and investor sentiment.

What role does quantitative easing (QE) play in current market volatility?

Quantitative easing (QE) is currently a major driver of sharemarket performance, both in absolute and relative terms. It is contributing to market volatility as investors weigh its effects against other economic factors like interest rate hikes and currency movements.

How are central banks influencing global exchange rates?

Central banks in economies with weak output growth are racing to lower their exchange rates to boost exports and stimulate consumer and investment spending through lower interest rates. This is creating a competitive environment that influences global exchange rates.

What are the potential impacts of US Federal Reserve interest rate hikes?

Potential US Federal Reserve interest rate hikes could impact economic recovery by either sparking inflation if growth rises or choking off recovery if rates rise too quickly. The timing of these hikes is crucial and is being closely watched by investors.

Why is there investor uncertainty despite economic recovery in the US and UK?

Investor uncertainty persists due to unresolved issues like forex movements, QE impacts, and the timing of interest rate hikes. Even with economic recovery in the US and UK, these factors contribute to heightened market volatility and investor caution.

How do lower oil prices affect producers and consumers?

Lower oil prices have a mixed impact, benefiting consumers through reduced costs but potentially harming producers by decreasing revenue. This dynamic contributes to the broader economic uncertainty and market volatility.

What is the significance of the FOMC meeting for investors?

The FOMC meeting is significant for investors as it may signal changes in monetary policy, such as the removal of the 'patient' tag regarding interest rate hikes. Such changes can influence market trends and investor strategies.

Why might the US Federal Reserve delay interest rate hikes?

The US Federal Reserve might delay interest rate hikes due to weak growth in the December-March quarters, lack of inflation, and no wage pressure. These factors suggest that immediate rate hikes may not be necessary, allowing the Fed to wait for more favorable conditions.