The US Federal Reserve stunned markets this week by maintaining US$85 billion of quantitative easing (QE) asset purchases a month, confounding consensus estimates that monetary policy normalisation would begin this month, as a positive reflection of the recovery under way in the US economy.
The Fed’s balance sheet will thereby continue to grow, having risen from about US$1 trillion when QE began in 2009, to almost $4tn this year, with a reduction in asset purchases likely to now take place over a more drawn-out timetable, and probably not ending completely until nearer to the end of next year. An interest rate rise in the US also appears to be a prospect for further out, with an eventual unwinding of the QE already in the system not expected to occur for a number of years to come.
The message for financial markets in general and for equities in particular would seem to be a positive one in the first instance, in that the monetary stimulus taps will remain on for much longer than previously assumed. This is also an encouraging signal for emerging markets, which have suffered over the summer as fears grew that QE was about to come to an end. However, there are also significant risks that stem from delaying the exit from QE, especially given the uncertainty created by the Fed appearing to change direction.
In refusing to taper this week, the Fed was clearly fearful of a tightening of financial conditions, which if sustained could slow the pace of economic improvement. The main concerns here appear to have been the recent rise in bond yields, to almost 3.0 per cent for 10-year US treasuries, and the accompanying rise in mortgage rates since the Fed chairman, Ben Bernanke, started talking about reducing the stimulus in May. The Fed also expressed some fears over fiscal policy, a reference perhaps to the debt ceiling talks that will be taking place next month, with political wrangling in Washington having the potential to spook markets further.
The Fed maintained its zero to 0.25 per cent main policy interest rate and much of its previous forward guidance, while it expressed concern about the risk of inflation staying below 2 per cent. The Fed also left its 6.5 per cent unemployment and 2.5 per cent inflation thresholds intact, although Mr Bernanke noted that the unemployment rate may need to fall “considerably” below its 6.5 per cent threshold before the central bank starts raising interest rates. Unsurprisingly given the lack of tapering action this month, the Fed cut its near-term growth forecasts, with its projections for the target Fed funds interest rate showing only a modest rise in 2015. Growth in 2016 is expected to be stronger, but the Fed funds rate is expected to be still well below its long-term average.
Meanwhile the Fed continued to emphasise the data-dependent nature of any decision to moderate asset purchases. While the initial market reaction was unsurprisingly euphoric, with equities rallying to all-time highs, bond yields falling and the US dollar also losing ground, the Fed’s message might be seen as raising more questions than it answers.
Indeed the longer-term reaction may not be quite so straightforward. The Fed has placed a great deal of store by the need to communicate effectively with the financial markets through its relatively new policy tool known as forward guidance. Given that the Fed had appeared to set up the market to expect a reduction in stimulus this month (since Mr Bernanke’s last press conference in June, and with the economy meeting much of the criteria laid out since then), the fact that they did not will raise questions about the worth of this forward guidance, leaving markets confused about the outlook for monetary policy. In particular, Mr Bernanke’s previous assertion that QE would be more or less completed when the unemployment rate reaches 7.0 per cent was hardly mentioned this week. The next focus for Fed tapering will probably fall on the Fed’s December meeting (when another press conference is to be held), but it could even be pushed back further into next year given what Mr Bernanke said.
Furthermore, the lack of a QE taper may actually damage the US economy, by raising questions about the strength of the recovery to date and damaging consumer and business confidence in the process. The fact that the Fed downgraded its growth forecasts makes it a little curious that the equity markets took the news quite so positively. The Fed’s credibility might also suffer as a consequence which could create a more volatile performance by major markets. In particular, to the extent that equity markets received a significant boost from the Fed’s message this week, any eventual tightening could contribute to a much bigger bust later. Likewise, should growth improve and inflationary pressures begin to emerge, US treasury bonds could be punished even more heavily down the road because of the Fed’s current caution.
Undoubtedly the Fed’s inaction will be received positively by emerging markets around the world, and this region should be no exception. The GCC states have already demonstrated resilience as the developed world has stuttered, with regional growth rates firm, and its financial markets among the best performers globally this year. The postponement of monetary withdrawal in the US should keep regional optimism positive for now, as interest rates remain low for longer. But of course postponed is not the same as removed, and all the world’s markets should remain aware that the longer-term risks have probably increased, not diminished, as a result of the Fed’s inaction.
Tim Fox is the head of research and chief economist at Emirates NBD but is writing here in a personal capacity
THE SPECS
2020 Toyota Corolla Hybrid LE
Engine: 1.8 litre combined with 16-volt electric motors
Transmission: Automatic with manual shifting mode
Power: 121hp
Torque: 142Nm
Price: Dh95,900
UAE currency: the story behind the money in your pockets
The five pillars of Islam
1. Fasting
2. Prayer
3. Hajj
4. Shahada
5. Zakat
India Test squad
Virat Kohli (c), Mayank Agarwal, Rohit Sharma, Cheteshwar Pujara, Ajinkya Rahane, Hanuma Vihari, Rishabh Pant (wk), Wriddhiman Saha (wk), Ravichandran Ashwin, Ravindra Jadeja, Kuldeep Yadav, Mohammed Shami, Umesh Yadav, Ishant Sharma, Shubman Gill
The biog
Fatima Al Darmaki is an Emirati widow with three children
She has received 46 certificates of appreciation and excellence throughout her career
She won the 'ideal mother' category at the Minister of Interior Awards for Excellence
Her favourite food is Harees, a slow-cooked porridge-like dish made from boiled wheat berries mixed with chicken
Who was Alfred Nobel?
The Nobel Prize was created by wealthy Swedish chemist and entrepreneur Alfred Nobel.
- In his will he dictated that the bulk of his estate should be used to fund "prizes to those who, during the preceding year, have conferred the greatest benefit to humankind".
- Nobel is best known as the inventor of dynamite, but also wrote poetry and drama and could speak Russian, French, English and German by the age of 17. The five original prize categories reflect the interests closest to his heart.
- Nobel died in 1896 but it took until 1901, following a legal battle over his will, before the first prizes were awarded.
Results
- Brock Lesnar retained the WWE Universal title against Roman Reigns
- Braun Strowman and Nicolas won the Raw Tag Team titles against Sheamus and Cesaro
- AJ Styles retained the WWE World Heavyweight title against Shinsuke Nakamura
- Nia Jax won the Raw Women’s title against Alexa Bliss
- Daniel Bryan and Shane McMahon beat Kevin Owens and Sami Zayn
- The Undertaker beat John Cena
- The Bludgeon Brothers won the SmackDown Tag Team titles against the Usos and New Day
- Ronda Rousey and Kurt Angle beat Triple H and Stephanie McMahon
- Jinder Mahal won the United States title against Randy Orton, Rusev and Bobby Roode
- Charlotte retained the SmackDown Women’s title against Asuka
- Seth Rollins won the Intercontinental title against The Miz and Finn Balor
- Naomi won the first WrestleMania Women’s Battle Royal
- Cedric Alexander won the vacant Cruiserweight title against Mustafa Ali
- Matt Hardy won the Andre the Giant Battle Royal
Jetour T1 specs
Engine: 2-litre turbocharged
Power: 254hp
Torque: 390Nm
Price: From Dh126,000
Available: Now
UAE currency: the story behind the money in your pockets
THE BIO
Favourite author - Paulo Coelho
Favourite holiday destination - Cuba
New York Times or Jordan Times? NYT is a school and JT was my practice field
Role model - My Grandfather
Dream interviewee - Che Guevara
Results
6.30pm: Maiden (TB) Dh82,500 (Dirt) 1,200m; Winner: Major Cinnamon, Fernando Jara, Mujeeb Rahman
7.05pm: Maiden (TB) Dh82,500 (D) 1,900m; Winner: Al Mureib, Fernando Jara, Ahmad bin Harmash
7.40pm: Handicap (TB) Dh102,500 (D) 2,000m; Winner: Remorse, Tadhg O’Shea, Satish Seemar
8.15pm: Conditions (TB) Dh120,000 (D) 1,600m; Winner: Meshakel, Xavier Ziani, Salem bin Ghadayer
8.50pm: Handicap (TB) Dh95,000 (D) 1,600m; Winner: Desert Peace, William Buick, Charlie Appleby
9.25pm: Handicap (TB) Dh87,500 (D) 1,400m; Winner: Sharamm, Ryan Curatlo, Satish Seemar
Europe’s rearming plan
- Suspend strict budget rules to allow member countries to step up defence spending
- Create new "instrument" providing €150 billion of loans to member countries for defence investment
- Use the existing EU budget to direct more funds towards defence-related investment
- Engage the bloc's European Investment Bank to drop limits on lending to defence firms
- Create a savings and investments union to help companies access capital
School counsellors on mental well-being
Schools counsellors in Abu Dhabi have put a number of provisions in place to help support pupils returning to the classroom next week.
Many children will resume in-person lessons for the first time in 10 months and parents previously raised concerns about the long-term effects of distance learning.
Schools leaders and counsellors said extra support will be offered to anyone that needs it. Additionally, heads of years will be on hand to offer advice or coping mechanisms to ease any concerns.
“Anxiety this time round has really spiralled, more so than from the first lockdown at the beginning of the pandemic,” said Priya Mitchell, counsellor at The British School Al Khubairat in Abu Dhabi.
“Some have got used to being at home don’t want to go back, while others are desperate to get back.
“We have seen an increase in depressive symptoms, especially with older pupils, and self-harm is starting younger.
“It is worrying and has taught us how important it is that we prioritise mental well-being.”
Ms Mitchell said she was liaising more with heads of year so they can support and offer advice to pupils if the demand is there.
The school will also carry out mental well-being checks so they can pick up on any behavioural patterns and put interventions in place to help pupils.
At Raha International School, the well-being team has provided parents with assessment surveys to see how they can support students at home to transition back to school.
“They have created a Well-being Resource Bank that parents have access to on information on various domains of mental health for students and families,” a team member said.
“Our pastoral team have been working with students to help ease the transition and reduce anxiety that [pupils] may experience after some have been nearly a year off campus.
"Special secondary tutorial classes have also focused on preparing students for their return; going over new guidelines, expectations and daily schedules.”
WOMAN AND CHILD
Director: Saeed Roustaee
Starring: Parinaz Izadyar, Payman Maadi
Rating: 4/5
UAE currency: the story behind the money in your pockets
The specs
Engine: 3.0-litre flat-six twin-turbocharged
Transmission: eight-speed PDK automatic
Power: 445bhp
Torque: 530Nm
Price: Dh474,600
On Sale: Now
UAE currency: the story behind the money in your pockets
UAE v Gibraltar
What: International friendly
When: 7pm kick off
Where: Rugby Park, Dubai Sports City
Admission: Free
Online: The match will be broadcast live on Dubai Exiles’ Facebook page
UAE squad: Lucas Waddington (Dubai Exiles), Gio Fourie (Exiles), Craig Nutt (Abu Dhabi Harlequins), Phil Brady (Harlequins), Daniel Perry (Dubai Hurricanes), Esekaia Dranibota (Harlequins), Matt Mills (Exiles), Jaen Botes (Exiles), Kristian Stinson (Exiles), Murray Reason (Abu Dhabi Saracens), Dave Knight (Hurricanes), Ross Samson (Jebel Ali Dragons), DuRandt Gerber (Exiles), Saki Naisau (Dragons), Andrew Powell (Hurricanes), Emosi Vacanau (Harlequins), Niko Volavola (Dragons), Matt Richards (Dragons), Luke Stevenson (Harlequins), Josh Ives (Dubai Sports City Eagles), Sean Stevens (Saracens), Thinus Steyn (Exiles)
Empty Words
By Mario Levrero
(Coffee House Press)
Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Company%20profile
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French business
France has organised a delegation of leading businesses to travel to Syria. The group was led by French shipping giant CMA CGM, which struck a 30-year contract in May with the Syrian government to develop and run Latakia port. Also present were water and waste management company Suez, defence multinational Thales, and Ellipse Group, which is currently looking into rehabilitating Syrian hospitals.
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
The Intruder
Director: Deon Taylor
Starring: Dennis Quaid, Michael Ealy, Meagan Good
One star
MATCH INFO
Uefa Champions League semi-finals, second leg:
Liverpool (0) v Barcelona (3), Tuesday, 11pm UAE
Game is on BeIN Sports
The Sky Is Pink
Director: Shonali Bose
Cast: Priyanka Chopra Jonas, Farhan Akhtar, Zaira Wasim, Rohit Saraf
Three stars
PROFILE OF STARZPLAY
Date started: 2014
Founders: Maaz Sheikh, Danny Bates
Based: Dubai, UAE
Sector: Entertainment/Streaming Video On Demand
Number of employees: 125
Investors/Investment amount: $125 million. Major investors include Starz/Lionsgate, State Street, SEQ and Delta Partners
THE LOWDOWN
Photograph
Rating: 4/5
Produced by: Poetic License Motion Pictures; RSVP Movies
Director: Ritesh Batra
Cast: Nawazuddin Siddiqui, Sanya Malhotra, Farrukh Jaffar, Deepak Chauhan, Vijay Raaz
Brief scoreline:
Wales 1
James 5'
Slovakia 0
Man of the Match: Dan James (Wales)
Dates for the diary
To mark Bodytree’s 10th anniversary, the coming season will be filled with celebratory activities:
- September 21 Anyone interested in becoming a certified yoga instructor can sign up for a 250-hour course in Yoga Teacher Training with Jacquelene Sadek. It begins on September 21 and will take place over the course of six weekends.
- October 18 to 21 International yoga instructor, Yogi Nora, will be visiting Bodytree and offering classes.
- October 26 to November 4 International pilates instructor Courtney Miller will be on hand at the studio, offering classes.
- November 9 Bodytree is hosting a party to celebrate turning 10, and everyone is invited. Expect a day full of free classes on the grounds of the studio.
- December 11 Yogeswari, an advanced certified Jivamukti teacher, will be visiting the studio.
- February 2, 2018 Bodytree will host its 4th annual yoga market.
Dubai World Cup nominations
UAE: Thunder Snow/Saeed bin Suroor (trainer), North America/Satish Seemar, Drafted/Doug Watson, New Trails/Ahmad bin Harmash, Capezzano, Gronkowski, Axelrod, all trained by Salem bin Ghadayer
USA: Seeking The Soul/Dallas Stewart, Imperial Hunt/Luis Carvajal Jr, Audible/Todd Pletcher, Roy H/Peter Miller, Yoshida/William Mott, Promises Fulfilled/Dale Romans, Gunnevera/Antonio Sano, XY Jet/Jorge Navarro, Pavel/Doug O’Neill, Switzerland/Steve Asmussen.
Japan: Matera Sky/Hideyuki Mori, KT Brace/Haruki Sugiyama. Bahrain: Nine Below Zero/Fawzi Nass. Ireland: Tato Key/David Marnane. Hong Kong: Fight Hero/Me Tsui. South Korea: Dolkong/Simon Foster.
Sonchiriya
Director: Abhishek Chaubey
Producer: RSVP Movies, Azure Entertainment
Cast: Sushant Singh Rajput, Manoj Bajpayee, Ashutosh Rana, Bhumi Pednekar, Ranvir Shorey
Rating: 3/5
Mobile phone packages comparison
MATCH INFO
Uefa Champions League last-16, second leg:
Real Madrid 1 (Asensio 70'), Ajax 4 (Ziyech 7', Neres 18', Tadic 62', Schone 72')
Ajax win 5-3 on aggregate
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
MATCH INFO
FA Cup fifth round
Chelsea v Manchester United, Monday, 11.30pm (UAE), BeIN Sports
Neil Thomson – THE BIO
Family: I am happily married to my wife Liz and we have two children together.
Favourite music: Rock music. I started at a young age due to my father’s influence. He played in an Indian rock band The Flintstones who were once asked by Apple Records to fly over to England to perform there.
Favourite book: I constantly find myself reading The Bible.
Favourite film: The Greatest Showman.
Favourite holiday destination: I love visiting Melbourne as I have family there and it’s a wonderful place. New York at Christmas is also magical.
Favourite food: I went to boarding school so I like any cuisine really.
Stan%20Lee
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