All Eyes on the FED

All Eyes on the FED

All Eyes on the FED 422 314 AMA Team

Screen_Shot_2013_06_18_at_9.14.08_AMWelcome back to another installment of Money Matters. We trust you had an enjoyable weekend wherever in the world it was spent. With the annual G8 summit now underway in Northern Ireland, let’s take a look back at the markets last week….
Volatility continued last week in the markets, but most of the major indices were only slightly lower with the S&P down just over 1% on the week. Although it’s not the biggest of movements it does result in a negative ending week for 3 out of the last 4. With most of the concerns still revolving around government stimulus, it’s pretty easy to say that all eyes are on the US FED meeting taking place at the end of this week. We’ve seen lighter trading volumes and not as much reaction to positive data ahead of this meeting which likely means that a lot of investors are sitting on the fence awaiting the meeting’s outcome before any further or other movements will be seen. In our opinion, it’s likely the FED will continue to postpone any reduction or end to stimulus, and any indication or hint in the slightest, to a possible end date, is not what traders are looking for. Instead, they’re hoping it will be business as usual, so we’ll wait with baited breath as to how this meeting goes.
Screen_Shot_2013_06_18_at_9.17.38_AMOver in China there’s still a lot of weaker than expected manufacturing data and lingering feelings about when this may pick up. We’ve talked about China shifting to more of a consumption economy and diversifying away from a heavily driven manufacturing economy but again, this will take some time and China is still considered globally, as a manufacturing leader. With that in mind, industrial materials such as copper, iron and steel continue to remain quite low in price, yet good buying opportunities for those who wish to invest and thus could benefit from in the upswing, if or when that was to happen. On the other hand, we’ve seen a slight rise in oil with current WTI oil sitting around US$97 a barrel. This is a good example of how some commodities can retain their value and be a good holding for longer term investors as commodities have a strong correlation to manufacturing while still being able to move on their own (as we’ve seen with the current rise oil rising even with the low manufacturing numbers).
Screen_Shot_2013_06_18_at_9.22.33_AMLooking to equities, although the last few weeks have resulted in some reduction off the equities indices, it’s difficult to take a strong position with the FED meeting happening later this week. If our opinion is correct, and the FED announces no end of reduction to stimulus in the near future, then it’s quite likely we will see equities return to their positive growth trend which has been seen for the most part of this year. However, any hint of stimulus ending in the near future would likely result in more profit taking and more sell outs as we have seen in the past 4 weeks. If we factor this all in, and what it means for investors, our approach and recommendation would be to continue with a balanced and diversified portfolio spread across different asset classes for the time being. This is pertinent, as investors who try to pick their position based on a potential government FED announcement may otherwise be extremely disappointed as we all know politicians can deviate from their original plans and can easily catch people off guard with unexpected announcements.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Darren Cox
Co-Head of Portfolio Management
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com

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