IFM Correspondent

November 4, 2016: US employers hired more workers in October and also hiked the wages of existing workers. Businesses added 175,000 jobs to the US economy in October and 156,000 jobs in September, while the unemployment rate ticked up to 5%.

“The expected payroll gains should easily meet the Fed’s criteria of some further progress in the labour market, which leaves us with a rate hike in December,” said Harm Bandholz, chief US economist at UniCredit Research in New York.

The economy continues to grow in terms of employment as well as economic growth. This could effectively cause the Federal Reserve to hike interest rates in December, as it is felt that the economy is capable of absorbing such a move.

The Fed had voted to keep the rates unchanged for now. Though the US central bank is expected to increase borrowing costs in December, that decision will likely depend on the outcome of the presidential election on November 8. The presidential race between Democratic candidate Hillary Clinton and Republican Donald Trump has rattled financial markets.

Usually, stocks rise before an election but this time, the presidential election has managed to disrupt the usual pattern in the equity markets. US stocks are falling due to the uncertainty over the result.

The trend in employment growth has slowed as the labour market nears full employment and the economy’s recovery from the 2007-09 recession shows signs of aging.

Nevertheless, there has been an increase in average monthly earnings, which grew by 0.3% in October from its previous position of 0.2% in September.

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IFM Correspondent

November 3, 2016: The Federal Reserve on November 2 hinted at hiking interest rates in December. For now, officials voted to keep rates unchanged following a meeting in Washington. They emphasised that the pace of rate hikes will depend on evolution of the economy.

“The committee judges that the case for an increase in the federal funds rate has continued to strengthen, but decided, for the time being, to wait for some further evidence of continued progress toward its objectives,” the Federal Reserve stated.

Volatility in the financial market due to uncertainty surrounding the result of US presidential election is the reason behind the Reserve’s decision not to hike interest rates immediately. US stocks and the dollar have taken a hit because of this very reason.

The US economy continues to grow in terms of employment as well as overall economic growth. Inflation finally appears to be picking up, although it remains below the Fed’s target of 2%. The Fed stated that it will need more evidence to substantiate that employment and inflation are on track according to the central bank’s goals before proposing a hike in interest rates.

The performance of the economy is creating confidence that it will be able to withstand increase in interest rates. The Fed plans to raise interest rates gradually.

A majority of investors expect the Federal Reserve to hike interest rates in the near future.

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IFM Correspondent

November 3, 2016: US stocks fell to the lowest since July amidst the uncertainty surrounding the presidential election after one poll suggested Donald Trump could win.

The latest ABC/Washington Post poll shows US presidential candidates Hillary Clinton and Donald Trump are neck-and-neck, with Donald Trump leading by just one point. The share price declines sent leading equity indices to their lowest level since Britain’s exit from the European Union.

Stocks pared losses after falling steeply in early afternoon trading as the S&P 500 breached a key technical level. The Dow Jones Industrial Average slipped 105.32 points, or 0.6 percent, to 18,037.10. The Nasdaq Composite Index dropped 0.7 percent, and the CBOE Volatility Index surged 8.8 percent to the highest since June 28.

The presidential race between Democratic candidate Hillary Clinton and Republican candidate Donald Trump has appeared to tighten in the past week following news that the FBI is investigating more emails as part of a probe into Clinton’s use of a private email system.

Investors anticipate turmoil in the market in the final stretch leading up to one of the most controversial elections in US history. There appears to be a general consensus among analysts that a Clinton win is likely to be good for the dollar as opposed to a Trump win. But anxiety and uncertainty is on the rise because, according to the latest polls, Hillary Clinton no longer appears to be in the lead. The market had accounted for Clinton winning but appears unprepared for Trump.

There are no major movements but as many investors are anxious about the outcome of the elections, there has been minor selling.

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IFM Correspondent

October 27, 2016: That banks in the US cozy up to politicians is known to all. However, a study by Bloomberg shows that it is no longer just Wall Street, but also Silicon Valley which is getting into political lobbying.

Bloomberg has stated that the five largest technology companies in the US – Apple, Amazon, Google, Facebook and Microsoft – spent more than twice as much on lobbying in 2015 as the five largest banks – $49 million versus $19.7 million

During the Obama administration, the technology industry has gotten close to Washington. In fact, it was during Obama’s administration that the government’s first chief technology officer — Megan Smith – was appointed. Smith was earlier a manager in Google.

Today the five big tech companies are the biggest firms in the US by market value. When Bloomberg asked Google about this, the company responded: “We help policy makers understand our business and the work we do to keep the internet open and fuel economic growth.”

Facebook stated that its goals in the capital include protecting customers, “explaining how our service works, and maintaining an open Internet and a culture of innovation”.

Further, it was stated in Hillary Clinton’s leaked email that Apple’s chief executive officer Tim Cook and Microsoft founder Bill Gates were on a list of Clinton’s potential vice-presidential nominees.

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IFM Correspondent

October 24, 2016: Only a few weeks is left before the US chooses its 45th president. Historically, every US president elected till date has faced a recession or a recession-like scenario. A Wall Street Journal survey in June of more than 60 economists shows that the odds of a recession within the next 12 months are about 21%, a rise of two percentage points higher than the poll taken in April.

“If the next president is not going to have a recession, it will be a US record,” said Gad Levanon, chief economist for North America at the Conference Board in New York. In the United States, the unofficial beginning and ending dates of national economic expansions have been defined by National Bureau of Economic Research (NEBR), a private non-profit research organisation. The NBER defines expansion as a period when economic activity rises substantially, spreads across the economy, and typically lasts for several years.

It might be recalled that when President Barack Obama took office in January 2009, the nation was in midst of the Lehman crisis. When George W Bush started his tenure in 2001, he inherited a recession-like scenario.

The current economic expansion, which is 83-month-old, is already the fourth-longest in more than 150 years. According to studies, it is showing signs of wearing off. In fact, the history of cyclical expansion suggests that the odds are significantly better than 50-50 that the US will have a recession within the next three years. US’s real GDP growth is on a downward trend over the last four quarters, according to the US Bureau of Economic Analysis (BEA).

A lot will also depend on how Brexit unfolds. An unstable EU will affect US in more than one way. Exports, which have been a major contributor in the nation’s post 2008 economic recovery, has suffered in the past few years, thanks to slower growth in Europe. Brexit will only exacerbate this. Historically, the UK has acted as the main channel for US to express its political and economic will in Europe. With the UK out of the European Union, the US will find it harder to influence Europe.

Hence, many are of the belief that the US is overdue for a recession even if Clinton comes to power. According to a report in Yahoo, findings by Tax Foundation show that a Clinton presidency would reduce GDP by 1% over the long-term and cause a 0.7 percent drop in after-tax income for the top 10% of taxpayers.

However, Tom Elliott, deVere Group’s International Investment Strategist, does not foresee much change if Clinton wins. “Assuming Clinton wins, I don’t expect much change from current growth rates (between 1 and 1.5%). She will be under pressure to be ‘tough’ on foreign trade, so Pacific and European trade deals look vulnerable. But the positive effect of completing these is only long term.”

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