AOTW: U.S.
Fed Hike This Year Seen as
Practically a Coin Flip on BOJ Move
January 30, 2016
Morning readers.
Markets continue to see-saw. Without a doubt we are quite happy to put January behind us, a
difficult month it was. Groundhog day is coming up on Tuesday. Hopefully Wiarton Willie,
Punxsutawney Phil, or your preferred groundhog doesn’t come out of its burrow, only to scurry
back inside after reading the financial press from January. Hopefully there is sunshine and we are
closer to the end of the market madness. (This is a joke in many ways. Firstly, I am aware that
groundhogs likely can’t read, and I am also doubtful that they can forecast weather.)
So what happened during the final week of January?
• Energy prices may have found a short-term base, although additional supply certainly
remains an issue. OPEC (Organization of Petroleum Export Countries) proposed
production cuts of upwards of 5%, although agreement on this is highly unlikely. That being
said we are hopeful the lows in oil over the past few weeks will hold and we can start to see a
longer-term basing. Still a long way to go to make most energy projects economic but
perhaps a start.
• The US Federal Reserve met mid-week and perhaps weren’t as “dovish” (another word for
accommodative) as the market hoped. The somewhat weaker-than-expected global
economic backdrop didn’t seemingly sway their wishes to push forward with interest rate
hikes over the course of the year. Most market participants continue to believe that there will
be few rate hikes than the Fed has intimated.
• Then on Friday, in very much a surprise move, the Bank of Japan (BoJ) introduced “negative
yields” for some bank reserves. Indeed they are taking a page from parts of Europe where
negative yields have become somewhat commonplace. Negative yields, which, up until the
last few years weren’t part of the lexicon of Central Banks, have become another source of
Quantitative Easing. Whether it works as a policy move is another point to discuss. This
move to push rates below zero buoyed worldwide equity markets at the end of the week.
What does it all mean? Well, the move by the BoJ has apparently reduced the likelihood of US rate
increases throughout the year. The logic being you can only go so far against the grain…when most
other nations are cutting, it’s hard to look at increasing rates in the US, as it’s potentially problematic
for the US (higher dollar) and hence the rest of the world.
So will Europe, Japan and the US remain accommodative? Too early to tell, but if so, that would
perhaps rebuild confidence in equity markets, and hence perhaps start strengthening investor
confidence. Article from Bloomberg below: http://www.bloomberg.com/news/articles/2016-0129/bets-on-fed-rate-hike-this-year-fade-after-boj-s-surprise-move
Contego Wealth Management | Raymond James Ltd.
750-45 O’Connor Street | Ottawa, ON | K1P 1A4
 613.369.4600 | Toll Free: 1.866.552.0889 | Fax: 613.369.4699
www.raymondjames.ca/contego
As advisors we are overwhelmed with data about the near-term outlook, and accommodative
Central Banks is likely a positive. Over the longer-term this lower, longer idea is surely to create
issues. For that reason we are always cognizant of incorporating investments whose outcomes aren’t
solely dictated by issues such as BoJ policy, Chinese growth, energy prices, etc.
We are in the throes of organizing some client/future client discussions from some of our lesser
correlated investments. Some of these many of you already own; however, given the market
gyrations we will likely discuss whether increasing your allocations to this area may be prudent.
Happy to further the discussion if you wish.
Enjoy the weekend. Three cheers for Wiarton Willie!
Greg Roscoe
Raymond James | Financial Advisor |
Contego Wealth Management
750-45 O’Connor Street | Ottawa, ON | K1P 1A4
 613.369.4661 | Toll Free: 1.866.552.0889 | Fax: 613.369.4699
[email protected] | www.raymondjames.ca/contego
Karol Phillips | Financial Advisor Associate |
 613.369.4662
[email protected]
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This newsletter has been prepared by Greg Roscoe and expresses the opinions of the author and not necessarily those of
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Contego Wealth Management | Raymond James Ltd.
750-45 O’Connor Street | Ottawa, ON | K1P 1A4
 613.369.4600 | Toll Free: 1.866.552.0889 | Fax: 613.369.4699
www.raymondjames.ca/contego