Johannesburg - Chris Gilmour, investment analyst with Absa Asset Management Private Clients, says while Ben Bernanke’s announcement to keep the Federal Reserves stimulus programme intact - for now - is good news in the short term, has less desirable connotations for the longer term.
"On the one hand it’s probably good news for the markets that we’re seeing a delay in the so called taper," says Gilmour, "but, on the other hand, it’s saying that conditions in the US economy are more fragile than we originally thought … so there remains a disconnect, between the high levels of the market and the underlying fundamentals. And it’s getting bigger.”
“Unless the start of the taper that has now been postponed coincides with a profound improvement in the U.S. economy,” warns Gilmour, “it could result in lower equity markets.”
As far as the September MPC meeting is concerned most observers were of the view that there was going to be no change, and that has turned out to be the case.
“The consensus view as to when we’re likely to see a rise in interest rates tends to be middle, even end of next year,” says Gilmour - who, “given the parlous state of the economy”, doesn’t rule out the possibility of a small – “say, a 25 basis point” – interest rate cut.