Latest news with #financialMarkets
South China Morning Post
13 hours ago
- Business
- South China Morning Post
Why critics of the Hong Kong dollar peg are getting it wrong
In financial markets, the Hong Kong dollar is known as a 'widow-maker', a ruinous trade that inflicts painful losses on successive generations of investors. While betting against Japanese government bonds has been the most notorious widow-maker trade, challenges to Hong Kong's currency peg to the US dollar date back to the 1997-98 Asian financial crisis and continue to attract speculators even though the trade has yet to pay off. As recently as May 5, the Hong Kong dollar – which has been pegged to its US counterpart since 1983 and confined to a narrow trading band of HK$7.75-7.85 to US$1 since 2005 – threatened to break through the strong end of the band, as a result of a sharp fall in the US dollar amid concerns about the perceived safe haven status of US assets. This forced the Hong Kong Monetary Authority (HKMA), the city's de facto central bank, to intervene aggressively by selling the local currency, unleashing a torrent of liquidity. Coupled with a surge in inflows into Hong Kong's buoyant stock market , this drove down interbank rates. By the end of May, the one-month Hibor – which serves as a benchmark rate for most residential mortgage loans – had fallen to 0.5 per cent, down from 4 per cent at the end of April. However, the sharp divergence in borrowing costs between Hong Kong and the United States has caused the local currency to weaken dramatically , leaving it perilously close to the weak end of the band. This has fuelled demand for 'carry trades', whereby investors borrow the Hong Kong dollar to buy the US dollar and pocket the interest rate differential. If the HKMA steps in again, this time to defend the weak end of the band, it will drain liquidity from the local market and push up borrowing costs. A renewed surge in Hibor threatens, in the face of a weak economy in desperate need of a sustained period of loose financial conditions. For speculators and critics of the peg, this shows that the disconnect between a US-led monetary policy cycle and a mainland China-driven economic cycle has become untenable.
Bloomberg
14 hours ago
- Business
- Bloomberg
Fidelity Fund Bets on Midcaps Saying Worst of Tariffs Is Over
Financial markets have seen the worst of Donald Trump's tariff threats, helping make midcap stocks an attractive buy as the outlook improves, according to a Fidelity International money manager. Japan, Germany and China midcaps account for about 11% of Fidelity's growth and income fund — making them some of the strategy's highest conviction trades, said George Efstathopoulos. In contrast, there was 'very limited exposure' to such stocks about 18 months ago.
CNET
2 days ago
- Business
- CNET
Mortgage Forecast: Homebuyers on Hold After Fed Puts Off Interest Rate Cuts
As the Federal Reserve likely holds interest rates steady, mortgage rates are expected to stay in a narrow range. Tharon Green/CNET The Federal Reserve held interest rates steady for the fourth consecutive time this year at its monetary policy meeting this week. However, rising jobless claims, intensified geopolitical conflict and slowing economic growth could force the central bank to cut rates as early as the fall. As turbulent trade policies pressure financial markets, investors have been wondering how President Donald Trump would influence the Fed's interest rate forecast. Trump has repeatedly scolded the Fed for not lowering borrowing costs already. The central bank is cautiously projecting two rate cuts in 2025. The Fed is tasked with maintaining maximum employment and containing inflation, primarily through setting its short-term benchmark interest rate for lenders. A sluggish economy typically warrants interest rate cuts to stimulate growth, but lowering rates too quickly could fuel price growth when inflation is still above target. At the same time, the Fed only indirectly impacts the mortgage market. In 2024, the central bank cut interest rates three times, but mortgage rates didn't fall. According to Bankrate data, the average rate for a 30-year fixed mortgage has moved in a narrow range between 6.7% and 7% since mid-April. Though housing affordability was expected to gradually improve in 2025, uncertainty over the direction of the economy has altered those forecasts. Most economists say mortgage rates will stay above 6.5% for the better part of the year. "You'd need to see mortgage rates pretty far below current levels, certainly below 6.75%, to incentivize homebuyers," said Beth Ann Bovino, chief economist at U.S. Bank. "Everybody's in a wait-and-see mode, not just the Fed," Bovino added. Mortgage rates aside, prospective homebuyers are also contending with a long-standing housing shortage, high home prices and a loss of purchasing power due to inflation. "Prices are still incredibly high," Bovino said. "Add to that the borrowing costs of a mortgage, and it's prohibitively expensive for most people to get into the housing market." Experts say many of the Trump administration's policies, such as tariffs, could cripple housing affordability even further, putting upward pressure on interest rates and the cost of building materials, like lumber, used to build new homes. CNET What's the path for mortgage rates now? Mortgage lenders base their rates on a range of factors. While the Fed's monetary policy changes regarding interest rates can influence overall borrowing rates, mortgage rates are primarily driven by movement in the bond market, specifically the 10-year Treasury yield. Bond yields and interest rates rise or fall depending on how new economic data shifts market speculation and risk assessment. If tariff policies recharge inflation, more affordable mortgages and housing will be difficult to achieve. "Even though many of the tariffs are in place, some of the big ones have yet to take effect," said Bovino. When people are nervous about finances, they'll be more reluctant to take on new debt. The average household in the US is expected to lose about $3,000 in income from tariffs, with lower-income households getting hit even harder, according to Bovino. Despite Trump's earlier claims that he would bring mortgage rates down to 3%, the White House doesn't set rates on home loans. Moreover, those kinds of rock-bottom pandemic-era rates would normally indicate that the country is in a severe economic crisis. Still, mortgage rates have the potential to dip this year. Given the economy's precarious nature, any sign of risk could lower bond yields and put downward pressure on mortgage rates. For example, Bovino said that markets will be weighing the impact of the Israel-Iran conflict, which could increase oil prices and spark concerns of an economic downturn. If unemployment spikes or a recession appears likely, mortgage rates could start decreasing. How to deal with high mortgage rates Prospective homebuyers who have been waiting for mortgage rates to drop for the past few years may soon have to adjust to the "higher for longer" rate environment, with mortgage loan rates fluctuating between 5% and 7% over the longer term. Since the 1970s, the average rate for a 30-year fixed mortgage has been around 7%. While market forces are out of your control, there are ways to make buying a home slightly more affordable. Last year, nearly half of all homebuyers secured a mortgage rate below 5%, according to Zillow. Here are some proven strategies that can help you save up to 1.5% on your mortgage rate. 💰 Build your credit score. Your credit score will help determine whether you qualify for a mortgage and at what interest rate. A credit score of 740 or higher will help you qualify for a lower rate. 💰 Save for a bigger down payment. A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance. 💰 Shop for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders. 💰 Consider mortgage points. You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage rate. Now Playing: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More 02:31
Wall Street Journal
2 days ago
- Business
- Wall Street Journal
Ahead of the Fed's Decision, Here's How Rates Have Moved Since 2000
Investors are nearly unanimous in expecting the Federal Reserve to keep interest rates on hold Wednesday, in a range of 4.25% to 4.5%. The chart below shows how the central bank has steered policy since the turn of the century, including through challenges like the global financial crisis and the Covid-19 pandemic. Most recently, the Fed left rates unchanged for a third consecutive time on May 7:
Wall Street Journal
5 days ago
- Business
- Wall Street Journal
JGBs Fall as Inflation Worries Overcome Geopolitical Tensions
0021 GMT — JGBs fall in price terms in the morning Tokyo session as inflation worries overcome geopolitical tensions. A pattern is often formed where yields rise as inflation concerns intensify on higher oil prices following initial declines in stock prices and yields due to geopolitical risks, SMBC Nikko Securities' Ataru Okumura says in a commentary. The extent to which ongoing Israel-Iran situation will impact financial markets will depend mostly on how much energy prices rise, the senior Japan rates strategist adds. The 5-year JGB yield is up 2.5bps at 0.990%. (
