Do you trust the markets? A silly question I know for many Crikey readers. Why would you at times, at others markets do send accurate messages, except for dud interpretations. But if you look at the antics of the markets from time to time it’s clear they (and their inhabitants) are a bit short on the accuracy thingie. Trust is another thing in short supply, except as in “Trust me, I’m your broker, bank, adviser etc”. Words such as overshoot and undershoot are used to excuse bad forecasts (guesses really). And there are people paid millions of dollars a year to overshoot, undershoot and get it just plain wrong (and occasionally land on the Powerball). This is a way of not forecasting what the US Federal Reserve will do tomorrow morning (our time). But looking at the way almost all the markets have gone in the past week, the message is that there won’t be a rate increase from the Fed, almost because the supposed hard blokes of the markets — US bond dealers and traders — reckon there’s a very good chance a rate rise is coming tomorrow. Amid the US dollar falling, gold and oil bouncing, sharemarkets around the world rising, one market went the other way.
Bond rule, OK? Up until the GFC, the bond market ruled. What they said and did (as expressed in yields and their direction) often proved to be the main driver for other markets, the dollar, shares and economies. In fact the US Treasuries market was supposedly the 1000-pound gorilla in the back of every market — just one twitch either way and there was sell-off or a surge. And then the GFC happened and markets needed years of record low rates and three bouts of quantitative easing to survive. With so much cash floating around, the bond market lost its power to terrorise and predict. In fact it’s now just as febrile as the rest of Wall Street, inhabited by high frequency traders and others. But with the Fed bound to make a decision on rates sooner than later and everyone focusing on tomorrow, the bond dealer gangs have been brought back into the game and are now being eyed nervously by other markets.
So what did they do overnight? Well, instead of keeping rates steady to slightly higher in an each way bet, they pushed the key two-year US bond rate (key for the short-term part of the market where any Fed rate rise will be felt more than in longer dated securities) to 0.811%. Now that is the highest it has been since April 2011 — more than four years. The 10-year bond (the global benchmark) reached 2.3% again (it has been higher in the same time). The message from the US bond market is that there is a good chance of a rate rise tomorrow. Seeing as the futures market has the chance of a rate rise down at 25% (or one in four), and a slightly higher chance for December, its a brave call from the bond markets. But they will have one more day to either rethink this call, or go with it. — Glenn Dyer
A beer-goggle merger. The world’s two biggest brewers AB InBev and SABMiller started to dance overnight with an eye (if the price is right) to merge and create a monster company with a market value of upwards of US$270 billion and close to 30% of the global beer market. SABMiller — which makes over 200 beers including Peroni Nastro Azzurro, Pilsner Urquell, Grolsch and the Fosters range in Australia — operates across six continents. Belgium-based (but Brazilian-dominated) AB InBev makes more than 200 brands around the world, dominated by Budweiser and Bud Light, and also including Labatt, Beck’s, Stella Artois, Bass and Lowrenbrau. It is the world’s largest brewer by market share with major operations around the world. SABMiller is strong in Africa, InBev is weak, but strong in the Americas. But there will be problems in Europe where asset sales will have to be made and it may not clear muster in Belgium, France and perhaps Germany after the EU recently tightened its takeover approval criteria. — Glenn Dyer