Weekly Newsletter #46/2014

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We have been asked by our readers why we don’ t expect interest rates to rise anytime soon. And also Erwin Lasshofer, CEO of INNOVATIS, raised an internal discussion on this projection since the market consensus expects rates to rise in 2015.

Last week we had strong economic numbers in the U.S. again. Equity markets reached new record highs, earnings season is ending favorably and unemployment is decreasing to the lowest level in years. So you should expect increasing wages, increasing prices and finally inflation in the near future if Fed keeps rates at record lows.

However, by now we cannot see any acceleration of wage increases at all – see our of the day. The Consumer Price Index remains stable. Long term interest rates are not far from their record lows. So there is no sign of inflation yet.

Energy and commodity prices have dropped dramatically during recent months. Gasoline prices dropped by almost a third in recent months. The strong U.S. dollar will curb import prices and limit export sales. Exports will slow down due to low ecomomic activity around the globe. So there will be no need to raise rates. Looking at the large government debt levels worldwide you have got to wonder who can afford higher rates at all. So even if there was a rate hike to come we would expect it to be very limited.

 Chart of the Day