Friday, November 28, 2014

Oil Price and Interest Rates

Most people have been forecasting the interest rates to rise by 2015, including me. The chorus of selling bonds and REITS in anticipation of such a scenario have been deafening. The chorus of selling shares now in anticipation of tightening and interest rate rise has also been deafening.Having held off doing anything in the past 2 years , other then buying Super Group (yes, im still holding on) and buying and selling Jardine CC), i finally gave in to picking up some other shares, given the change in market conditions and also the uncomfortably high proportion of cash i hold.

The US Fed desires an about 2% inflation growth and a low unemployment rate. Currently, the inflation rate is low at about 1.7%. With oil price being DECIMATED, i do foresee a reduction in inflation rates and HENCE no pressure on the US Fed to increase the interest rates to squall any runaway inflation scenarios. The act of China lowering their interest rates and Europe, together with Japan, doing QE makes it even harder for the US Fed to raise interest rates which if they do, would increase their US dollar strength and hurt US employment.
I got this feeling that since QE, ultra low interest rates have not helped, now oil prices through shale oil production are being used to spur the economic engine by US. They do have a lot of tools.

Seems bullish for the general stock market.