15
MARCH 2014
ACT
BUSINESS NEWS
AUTHOR:
CHRIS SLEIGHT
is
one of the world’s most
internationally renowned
construction business writers,
with specialist expertise in
financial markets and stock
market analysis. He is editor
of KHL’s market-leading
International Construction
and
is a regular contributor to
ACT’
s sister publication,
International Cranes
and Specialized
Transport
.
Chris Sleight
reports that the
reduction in the
Fed’s quantitative
easing program is
having an impact
on the stock
markets, albeit
by a roundabout
route.
R
egular readers of
this column will
have seen plenty
of warnings over the last few
months that the rally can’t go
on forever. As has been seen
over the last year or so, the
lack of other safe havens has
seen the Dow scale previously
unimaginable heights, most
recently breaking through
16,500 points in mid-January.
And while markets cannot
defy gravity forever, the other
cliché to employ is that bulls
don’t die of old age. In other
words, stocks won’t always
rise, but something needs to
happen to make them fall.
QE impact?
That catalyst arrived in late
January in the shape of the
Fed’s reduction in quantitative
easing (QE). The so-called
tapering announced just
before Christmas will see the
amount of money the central
bank creates to buy up assets
like government bonds fall
from the previous level of
$85 billion a month to zero,
probably by the end of this
year.
Although it is an American
policy by the United States
Federal Reserve, the impact
of tapering is largely being
felt outside the country. The
winding-down of QE means
yields are rising for the type
of securities the Fed was
spending money on. This
makes them more attractive,
so investors are taking their
money out of higher risk
emerging markets in favour of
these safer US instruments.
To do this they have
effectively sold emerging
market currencies, which has
driven those lower.
The response in countries
like Brazil, India and
Turkey has been to hike-up
interest rates to defend their
currencies, in some cases
very sharply. The Turkish
ACT Heavy Equipment Index (HEI)
DOW
NASDAQ
S&P 500
40%
35%
30%
25%
20%
15%
10%
5%
0%
5%
-10%
-15%
-20%
% change
52 weeks to February 2014
Central Bank, for example,
put its overnight lending rate
up from 7.75 percent to 12.5
percent at the end of January.
Higher interest rates of
course mean less borrowing
and higher debt costs for
businesses, so therefore less
economic growth in these
countries.
Consequences
The consequent threat to
global economic growth
pushed stock markets around
the world lower in late
January and early February,
and the major U.S. indicators
– the Dow, S&P 500 and
NASDAQ – were among those
that fell.
So while QE tapering may
not have a direct impact on
the American economy, the
way the world is tied together
through trade these days
means there could be an
impact down the line from
weaker export markets.
■
ACT’
s Heavy Equipment Index
(HEI) tracks the performance
of eight of America’s most
significant, publicly-traded
construction equipment
manufacturers – Astec
Industries, Caterpillar, CNH,
Deere & Company, Joy Global,
Manitowoc and Terex.
Tapering affects
stock markets
