Financial and Economic Brief - June 27, 2017by © Liberty Publishing, Inc.
Fed Policy to Tighten?
The indication of improving private creditworthiness, with the narrowing of credit spreads, along with record stock prices and falling bond yields, “could” inspire the Fed to continue tightening U.S. economic policy, according to Fed of New York president and CEO William Dudley. He noted in prepared remarks, “Monetary policymakers need to take the evolution of financial conditions into consideration. …When financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation.”
U.S. Stocks and Oil Stalling
U.S. stocks trimmed gains on Monday, as technology stocks and oil prices “stalled.” Investors are awaiting a fall in stock prices due to inflated inventories across the globe and a swell in short sale contracts. Furthermore, oil prices continue near seven-month lows because of the rise in U.S. oil supply. The fall in oil prices has provoked concerns about low inflation, which remains below the Fed’s 2% target. The Fed raised rates this month for the second time in 2017 and is expected to raise it again. Investors, concerned about “stretched valuations”, adjusted their focus to defensive sectors.
China Opening to More Foreign Investors
U.S. investors will soon have access to the MSCI, a leading global index provider, which includes 222 Chinese stocks (A shares) in its emerging-markets stock index. This is essentially a new way for investors to “gain exposure” to a limited number of Chinese stocks. This will be possible this time next year through mutual funds that are run by managers or index funds and ETFs that track the MSCI Emerging Markets Index. However, China is still far from being a free, open stock market. Currently, U.S. investor exposure to Chinese stocks are through companies that trade on Hong Kong and U.S. stock exchanges.