As we discussed heading into the meeting, the outcomes of Jackson Hole could not only significantly drive interest rate expectations, but also set the tone for markets generally for the remainder of the year, in our view. Key takeaways from the meeting related to US interest rate policy, and Fed Chair Janet Yellen was relatively neutral, stating that the case for rate hikes has “strengthened in recent months”, without explicitly discussing timing. Following Yellen’s remarks, Fed Vice Chair Fischer was more hawkish, as he alluded to the possibility of 2 hikes this year. believe the September US Federal Reserve meeting is very much live, with the possibility of a rate hike next month. With the caveat that as always hikes will be data dependant, there is also a distinct chance of another hike in December as well, in our view. The key data point to watch will be this Friday’s employment data, as another strong jobs number might well lead to a hike in September.
One of the key implications of higher US interest rates is that it should result in US dollar strength (as a higher interest rate makes a currency a more attractive investment). We have been vocal in our views that the US economy is in a much better state than the pessimists believe, and rate hikes over the medium term should drive US dollar strength. While we believe rates are likely on the way up in the US, closer to home we believe the Reserve Bank of Australia and Reserve Bank of New Zealand are committed to keeping rates at low levels. Accordingly, one of our main portfolio thematic views remains buying stocks which benefit from a falling AUD & NZD / rising USD. Key sectors we are positively positioned towards include tourism stocks and agriculture exporters which should benefit from falling local currencies…
