Possible delay to US interest rate hike boosts State Street global investor confidence index
Investor optimism in the US increased in June on speculation that the Federal Reserve will delay an increase in interest rates and as macroeconomic data show signs of growth, according to the State Street Investor Confidence Index.
Confidence declined in Asia and Europe, however, amid a Chinese economic slowdown and continued turmoil in Greece. Overall, global investor confidence rose 5.6 points in June to 127 from a revised reading of 121.4 in May.
US investor confidence, as measured by the North American Investor Confidence Index (ICI), climbed 11.7 points to 142.9, from a revised reading of 131.2 in May. Asian confidence, meanwhile, dropped 10.3 points to 87.6 while the European ICI declined 1.2 points to 102.5.
Comments by US Federal Reserve officials have been interpreted by the market to mean it will likely hold off on increasing interest rates until as late as the end of this year, helping spur stock gains in the US.
‘The lack of hawkish sentiment from the Federal Reserve and a reduction in guidance for rates at year-end 2016 and 2017 resulted in a boost to North America sentiment,’ Ken Froot, co-developer of the index, says in a press release. ‘It will be interesting to see how stronger labor markets and core inflation in the US offset concerns over the first rate hike.’
China, on the other hand, has cut its main interest rate as stocks in Shanghai declined more than 7 percent in June after record gains that had many analysts warning of an equity bubble. In Europe, growing speculation that Greece will default on its debt and perhaps exit the euro zone has weighed on investor optimism. However, the June index was compiled before talks stagnated and Greece called a national referendum to decide on proposed repayment plans.
‘Although the confidence of investors based in Europe did drop, it did so marginally,’ says Michael Metcalfe, senior managing director and head of global macro strategy at State Street Global Markets. ‘We will need to wait to see next month's reading to see if this was based on misplaced confidence in a resolution to the Greek saga or whether the contagion effects from Greece are indeed less than first feared.’
