Lower for longer. That's the view as summed up by Goldman Sachs – global central banks will have to maintain loose monetary policy, with a chance the Federal Reserve will delay its planned rate hike well into next year, or even later. Riskier assets continue to rise with the MSCI All Country World Index gaining for a fifth day, the longest stretch since April. The winning streak of Asia stocks has also reached five days, also the best since April, while the five-day run of the S&P 500 Index is the longest since December. European stocks swungs between gains and losses at then open.
Indonesia's rupiah surged as much as 2 percent against the U.S. dollar, the most since May 2012, as riskier assets benefited from the assumption the Fed will keep interest rates at a record low until at least March. The odds of a hike in 2015 are 35 percent, according to Fed fund futures. A month ago, the probability stood at 58 percent. Emerging markets currencies have just come off the worst quarter on record on prospects for higher U.S. interest rates, a slowing Chinese economy and slumping commodity prices. Franklin Templeton's Michael Hasenstab, who oversees 30 funds with $143 billion in assets says the recent sell-off in emerging market assets has opened up opportunities not seen for decades.
The Bank of America Merrill Lynch Market Risk Index, which tracks volatility across equities, rates, currencies and commodities, is falling for a fourth day, its longest run since Sept.17. The measure rose to a three-year high on Sept. 4. The most famous gauge of fear – the Chicago Board Options Volatility Index, otherwise known as the VIX – has fallen for 5 straight days, the best streak since July. On Monday, it closed below 20 for the first time in over 30 days, ending its lengthiest run above that level since 2012.
Is the German economy creaking from a slowdown in China and other emerging markets? Data today on factory orders, which showed an unexpected drop of 1.8 percent in August, highlights the threat posed to the nation's export-orientated growth model. The dangers don't end there. The nation's reputation for manufacturing excellence has been thrown into doubt by the Volkswagen emission scandal. An influx of migrants is also set to put a strain on Germany's finances. A couple of points worth noting: The factory index is notoriously volatile and domestic demand is benefiting from record employment, rising wages and low inflation.
Mark Barton is a presenter on Bloomberg TV. Follow him on Twitter @markbartontv