As negotiations over Greece rattle traders, the more significant event that will dictate the future of equity markets is the first Federal Reserve interest-rate increase in nine years, UBS Group AG says.
Economists expect the central bank to leave the Fed funds rate unchanged on Wednesday, and a Morgan Stanley index shows policy makers will raise it in about 5 1/2 months. Investors choosing to focus on Greece are missing the bigger picture, according to Mark Andersen, the head of regional asset allocation at UBS’s wealth-management unit, which oversees $2.2 trillion.
“Investors sometimes focus very much on one issue, when you have something else running in the background,” said Andersen from Zurich. “We have an interesting Fed meeting coming up. In the bigger picture, this could have more of an impact on markets.”
The back-and-forth in Greek talks helped send the Stoxx Europe 600 Index down 3.6 percent this month, while the Standard & Poor’s 500 Index has lost 0.5 percent.
Improving data from retail sales to wage growth have boosted speculation that Fed officials will raise borrowing costs soon. Bearish futures positions on the S&P 500 outnumber bullish ones by the most in eight months, and short interest on an exchange-traded fund tracking the index reached the highest level since October.
The Fed rate increase is a bigger concern than Greece because the European Central Bank will provide a floor to the region’s equities, UBS’s Andersen said. To him, a further selloff would mark a buying opportunity.
“Greece is more noise than anything else,” said Gunther Westen, who helps oversee about $28 billion as head of asset allocation and fund management at Meriten Investment Management GmbH in Dusseldorf, Germany. “The first Fed hike is more important in my view, and markets seem to be too complacent in that respect.”
For more, read this QuickTake: The Fed’s Countdown