Will the next Fed meeting’s decision really make a difference?

So now we're all on tenterhooks until 18th Sept.

So now we're all on tenterhooks until 18th Sept., when we hear if the Federal Reserve has decided to reduce, (‘taper’), its monthly bond purchases. Traders, Treasurers, pension pot holders, emerging market Finance Ministers-this is what we’ve been waiting for since Bernanke first warned us in May/June it may be coming.
However, this certainly will be no surprise-this is not 1994 with its surprise Fed hike and bond market rout. The Fed has done a fantastic job of delivering an unpopular message-the start of the end of cheap money-in a manner designed to cause the least possible market volatility, and maybe the still buoyant level of the S&P 500 is eloquent testimony to their success. The reasons for the S&P's resilience are important.
Developed market countries' stock markets have retained their poise because US bonds yields have been going up for a good reason-and that is the return of growth and optimism, not just in the US, but also in Europe and China. The rise in 10-yr US Treasury yields from 1.4% to 3.0% is best described as a healthy normalisation, as it has been driven by a reduction in the all-pervading fear which has gripped the market since the Lehman bankruptcy, first, and then the emergence of the Eurozone crisis, once the depth of Greece's fiscal mess became clear.
This basic human response to seek safe-haven has played an equally important part as that of QE in keeping yields subdued.
Only in the last six months have we started to return to the 'normal' modus operandum, in which long term yields are the sum of compounded short rates and the risk premium, the latter being investors' judgement of future liquidity, credit, and fiscal and monetary policy uncertainty over the life of the bond.
Paradoxically, desperate safe-haven flight far outweighed those factors for US Treasuries, and collapsed the risk premium. We have now returned to a normal state of affairs, with the Eurozone crisis also contained, as we all belatedly came to appreciate that political will would easily overcome any economic maladies.
This has lead me to the scary conclusion that while the FOMC's pronouncements on 18th may prompt a temporary rally in US Treasuries, (especially as there is a 50 per cent probability that they will lower the employment threshold for rate rises from 6.5 per cent to 6 per cent), but that will be a great opportunity to sell bonds.
This is a bond bear market-and companies like Verizon are very wise indeed to lock in cheap borrowing. Growth is on the rise worldwide, (even rather anaemically in Europe), and I'm afraid the Fed won't have any room for hesitation driven by concerns over the effect of tapering on emerging markets, as was made abundantly clear by a couple of senior Fed officials at the Jackson Hole conference. No wonder; the Fed-haters in the Senate would have a field day if the FOMC seemed to be managing other countries' economies for them. (Of course, those Senators give no thought for the potential negative feedback effects that an EM crisis could have on the US).
Let's say the Fed doesn’t actually taper QE at all, that will send stock markets soaring and give business confidence another boost-quickly pushing yields higher anyway.

Ben Bernanke Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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An unmatched font of knowledge

Edinburgh’s global reputation as a knowledge economy is rooted in the performance and international outlook of its four universities.

As sociologist-turned US Senator Daniel Patrick Moynihan recognised when asked how to create a world-class city, a strong academic offering is pivotal to any forward-looking, ambitious city. “Build a university,” he said, “and wait 200 years.” He recognised the long-term return such an investment can deliver; how a renowned academic institution can help attract the world. However, in today’s increasingly globalised higher education sector, world-class universities no longer rely on the world coming to come to them – their outlook is increasingly international.

Boasting four world-class universities, Edinburgh not only attracts and retains students from around the world, but also increasingly exports its own distinctively Scottish brand of academic excellence. In fact, 53.9% of the city’s working age population is educated to degree level.

In the most recent QS World University Rankings, the University of Edinburgh was named as the 21st best university in the world, reflecting its reputation for research and teaching. It’s a fact reflected in the latest UK Research Exercise Framework (REF), conducted in 2014, which judged 96% of its academic departments to be producing world-leading research.

Innovation engine

Measured across the UK, annual Gross Value Added (GVA) by University of Edinburgh start-ups contributes more than £164m to the UK economy. In fact, of 262 companies to emerge from the university since the 1960s, 81% remain active today, employing more than 2,700 staff globally. That performance places the University of Edinburgh ahead of institutions such as MIT in terms of the number of start-ups it generates; an innovation hothouse that underlines why one in four graduates remain in Edinburgh and why blue chip brands such as Amazon, IBM and Microsoft all have R&D facilities in the city.

One such spin out making its mark is PureLiFi, founded by Professor Harald Haas to commercialise his groundbreaking research on data transmission using the visible light spectrum. With data transfer speeds 10,000 times faster than radio waves, LiFi not only enables bandwidths of 1 Gigabit/sec but is also far more secure.

Edinburgh’s universities play a pivotal role in the local economy. Through its core operations, knowledge transfer activities and world-class research the University generated £4.9bn in GVA and 44,500 jobs globally, when accounting for international alumni.

With £1.4bn earmarked for estate development over the next 10 years, the University of Edinburgh remains the city’s largest property developer. Its extensive programme of investment includes the soon-to-open Higgs Centre for Innovation. A partnership with the UK Astronomy Technology Centre, the new centre will open next year and will supply business incubation support for potential big data and space technology applications, enabling start-ups to realise the commercial potential of applied research in subjects such as particle physics.

It’s a story of innovation that is mirrored across Edinburgh’s academic landscape. Each university has carved its own areas of academic excellence and research expertise, such as the University of Edinburgh’s renowned School of Informatics, ranked among the world’s elite institutions for Computer Science. 

The future of energy

Research conducted into the economic impact of Heriot-Watt University demonstrated that it generates £278m in annual GVA for the Scottish economy and directly supports more than 6,000 jobs.

Set in 380-acres of picturesque parkland, Heriot-Watt University incorporates the Edinburgh Research Park, the first science park of its kind in the UK and now home to more than 40 companies.

Consistently ranked in the top 25% of UK universities, Heriot-Watt University enjoys an increasingly international reputation underpinned by a strong track record in research. 82% of the institution’s research is considered world-class (REF) – a fact reflected in a record breaking year for the university, attracting £40.6m in research funding in 2015. With an expanding campus in Dubai and last year’s opening of a £35m campus in Malaysia, Heriot-Watt is now among the UK’s top five universities in terms of international presence and numbers of international students.

"In 2015, Heriot-Watt University was ranked 34th overall in the QS ‘Top 50 under 50’ world rankings." 

Its established strengths in industry-related research will be further boosted with the imminent opening of the £20m Lyell Centre. It will become the Scottish headquarters of the British Geological Survey, and research will focus on global issues such as energy supply, environmental impact and climate change. As well as providing laboratory facilities, the new centre will feature a 50,000 litre climate change research aquarium, the UK Natural Environment Research Council Centre for Doctoral Training (CDT) in Oil and Gas, and the Shell Centre for Exploration Geoscience.

International appeal

An increasingly global outlook, supported by a bold international strategy, is helping to drive Edinburgh Napier University’s growth. The university now has more than 4,500 students studying its overseas programmes, through partnerships with institutions in Hong Kong, Singapore, China, Sri Lanka and India.

Edinburgh Napier has been present in Hong Kong for more than 20 years and its impact grows year-on-year. Already the UK’s largest higher education provider in the territory, more than 1,500 students graduated in 2015 alone.

In terms of world-leading research, Edinburgh Napier continues to make its mark, with the REF judging 54% of its research to be either world-class or internationally excellent in 2014. The assessment singled out particular strengths in Earth Systems and Environmental Sciences, where it was rated the top UK modern university for research impact. Taking into account research, knowledge exchange, as well as student and staff spending, Edinburgh Napier University generates in excess of £201.9m GVA and supports 2,897 jobs in the city economy.

On the south-east side of Edinburgh, Queen Margaret University is Scotland’s first university to have an on-campus Business Gateway, highlighting the emphasis placed on business creation and innovation.

QMU moved up 49 places overall in the 2014 REF, taking it to 80th place in The Times’ rankings for research excellence in the UK. The Framework scored 58% of Queen Margaret’s research as either world-leading or internationally excellent, especially in relation to Speech and Language Sciences, where the University is ranked 2nd in the UK.

In terms of its international appeal, one in five of Queen Margaret’s students now comes from outside the EU, and it is also expanding its overseas programme offer, which already sees courses delivered in Greece, India, Nepal, Saudi Arabia and Singapore.

With 820 years of collective academic excellence to export to the world, Edinburgh enjoys a truly privileged position in the evolving story of academic globalisation and the commercialisation of world-class research and innovation. If he were still around today, Senator Moynihan would no doubt agree – a world-class city indeed.

For further information www.investinedinburgh.com