Kasikornbank (KBank), a leading banking group of Thailand, is forecasting a one-time only US Federal Reserve (Fed) rate hike for 2017. KBank, represented by their head of capital markets research, Kobsidthi Silpachai, is confident in their prediction as they said that inflationary pressure could go lower than anticipated. What’s more, KBank also sees that the market will be cautious especially because it is expected that the dollar will be strong enough to dampen competition between US companies.
In a statement Mr Kobsidthi Silpachai confirmed the Thai banks forecast saying, “We expect only one rate hike from the Fed this year, lower than the three increases signalled by the Fed, since we believe that inflation may not be as high as earlier expected and the Fed will also have to consider the competitiveness of US companies. As the market has priced in this news, the US dollar increased even before the Fed jacked up its rate in December .”
Furthermore, Mr Kobsidthi Silpachai emphasized the move that most investors have resulted in doing: turning to safe havens. 2016 geopolitical events including the US Presidential elections and the Brexit have pushed investors to seek asylum. Trump’s fiscal expansionary policy also adds to the reason for this as it caused the strengthening of the dollar.
Another factor that would refrain the Fed from further hiking their interest rates is the relationship with China. Currently, the Chinese yuan is being pressure by the US dollar. This is seen as a reason for some of Chinese exports to cheapen. The yuan has already lost over 7% versus the dollar.
Mr Kopsidthi Silpachai continues, “As a result, inflation in the US might not be as high as the Fed had earlier expected, lowering the need hike the target rate several times this year.”
This downward path that the Chinese yuan is tracking will give the Fed the chance to raise rates at a relaxed pace so they can maintain the competition among US companies.
The Federal Reserve has been reducing the interest rates for about seven years in order to spur an economy in recession. Lowered interest rates make corporate and consumer loans easier to acquire. This, in turn, puts more money in circulation to boost the economy. However, this injection of money cannot be left unchecked. A rapid growth in the economy can lead to inflation which will render the economy undervalued. Thus, the fed will then have to hike interest rates to keep the economy at a steady growth pace.
Today, we are at the point where it’s time to increase the interest rates. In fact, the Federal Reserve has already started the rate increase. It will, of course, be a slow process. But still, the truth is it has already started. Now you as an investor must adjust accordingly. Different companies will be affected by this event and you must be ready to put your money in the stocks that will matter. To help you decide, we have researched and narrowed the most probable stocks to avoid as the fed hikes interest rates. Here are the companies which you must be cautious of.
Colgate-Palmolive is one of the most common household names in the country and yet it is facing major competitions to remain just that. The company is already facing a high-floating rate debt that forced it to cut cost, increase prices, and endure volatility to keep itself from losing more profit. The stronger dollar and steadily rising interest rates has affected the company negatively as 80% of its revenue comes from abroad. In the third quarter of 2015, Colgate-Palmolive has already lost 13% with sales in Latin America plunging by 11% where more than one-quarter of the company’s sales come from.
The American global information technology company has a good track record against the broader market. However, it’s earnings and revenues are still on a downward slope. This left them with no choice but to cut down the operating cost in order to stay relevant in the market. The fact is Hewlett-Packard is slowly fading away with the mass of new technology companies that are continually expanding and growing to take its place. The competitive technology market is steadily excluding the once technology powerhouse. It also doesn’t help that it still uses traditional hardware such as printers to pull them out of the gutter. Meanwhile, it’s competitors have already made significant advances using cloud computing and mobile solutions while Hewlett-Packard remains conventional. All in all, it is highly likely that the company will be significantly affected by the rising interest rates and unstable emerging markets.
Johnson & Johnson
One of the S&P 500’s most dominant company’s, Johnson & Johnson has been showing a weak performance in a little more than over two years with no signs of improving anytime soon. The company is currently wrestling with a constantly changing global economy to acquire an organic growth. The sudden influx of the US dollar has hit the company and with almost half of it’s revenue depending on overseas business, Johnson & Johnson has certainly struggle in recent years. It doesn’t stop there. The dollar is predicted to even grow stronger in the next years and it will surely drag the company even more. For the third quarter of this year, the company dropped by 7.4% with the loss being attributed to the 0.8% increase in operational costs and a negative currency impact of 8.2%.
The increase in interest rates that the Federal Reserve is imposing will definitely affect all stocks in some kind of way. The economy itself will slow it’s growth and the financial system will also change. The best thing you can do as an investor is to keep vigilant and always research before any decision.
Economists are expected the Federal Reserve to change their language regarding monetary policy and let go of their previous pledge to keep interest rates low for a “considerable time.”
According to 68% of economists surveyed by Bloomberg News, the US central bank is likely to make use of the term “patient” when describing its intentions for monetary policy going forward. The Federal Open Market Committee, which meets starting today until tomorrow, is seen to hike up its interest rates in the middle of 2015.
Officials of the bank are currently discussing the timing of when to tighten its policies are expected to make use of favorable jobs data bringing them close to achieving the Fed’s goal despite falling prices of crude oil that are preventing inflation from picking up. In the US, 321,000 additional workers were hired in November, the highest number in nearly three years, while unemployment fell to 5.8% to hit its lowest in six years and approach the Federal Reserve’s target of between 5.2% and 5.5%.
59% of economists forecast that a drop in unemployment will be one of the factors emphasized when debates on rate increases begin, while 41% said that inflation lingering below the target level will be enough to delay the timing. The central bank has held its borrowing costs to near zero since December 2008 even after ending its final round of quantitative easing last October.
Committee members are expected to make an announcement and release updated economic data tomorrow afternoon which will be followed by a press conference led by Fed chair Janet Yellen.
The US economy is predicted by economists in a separate survey conducted by Bloomberg News to grow by 2.9% in 2015, the best rate in ten years.