An interest rate hike in the United States is unlikely to happen before October as the recent data hasn’t provided sufficient comfort to the authorities about economic conditions, according to Swiss asset management firm SYZ.
“The Fed is not in a hurry to hike interest rates because wage and core inflation are still well below its 2 percent target,” said Fabrizio Quirighetti, head of multi-asset and fixed-income at SYZ Asset Management, an arm of Banque SYZ.
“The labor market had some strong gains in payrolls, which is positive. But at the same time, labor participation rate remains very low and wage growth remains subdued,” he said at a media briefing in Hong Kong Friday.
An interest rate hike may happen only in October, said Quirighetti, adding that the move, when it comes, will mark final evidence that US economic growth is improving.
The optimism about the economy will prove beneficial to the equity market, he said.
“After the hike, we may see a resumption of the bull market.”
For equity valuations to be supported, the real rates should stand at about one percent, and the Fed funds rate should be capped at 3 percent, Quirighetti said.
SYZ, which has 29 billion euros of assets under management, is now underweight on the equity market in the US. It is bullish on the markets in Europe, while being neutral on emerging markets.
In other comments, Quirighetti said he expects the Chinese yuan to depreciate 5 percent against the US dollar in the coming 12 months in an “orderly” manner.
He attributed the expected slide to a strong US dollar and a weakening in China’s trade balance.
“The kind of flows that we are seeing won’t favor a strengthening of the yuan. I suspect that we have more outflows than inflows,” the SYZ official said.
China’s foreign reserve and current account surplus are also declining, he noted.
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