Dollar bulls and rate bears in anticipation of Fed’s policy shift – Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 15, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that historically, rate hike cycles are anticipated by markets, lead to slowly evolving economic shifts, and are well digested by markets.

    Key Quotes

    “The upcoming rate hike fits this template in some aspects, but there are elements of the
    current landscape that may make this time different on several fronts.

    … and headwinds may be greater for equities

    Broadly speaking, we are bullish the USD and bearish US rates. US equities may be stuck somewhere in the middle, with growth low and level, rates rising and financial conditions tightening. Moreover, the current data flow has not been encouraging either. Even if the Fed is mindful of not overtightening financial conditions, it will be equally careful not to get too
    far behind the curve. And if the data do pick up, it may then need to rein in growth expectations.

    Data dependence and tactical risks will keep Fed in focus

    The Fed does not expect to be on a predetermined course. Given this data dependence, amid atypical growth and inflation trajectories, and recent near-term uncertainties, we expect the market focus to shift quickly from the initial hike – which has been well flagged – to the subsequent path. The ultimate pace of hikes will depend on the health of the economy, the degree to which small policy rate hikes cause broader measures of financial conditions to tighten, and the ability of markets and the economy to tolerate that tightening. Hence, much of the current ‘will they/won’t they’ debate is likely to remain a common trope as the appropriate pace of rate hikes remains a market focus.”

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