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Market Viewpoints

"Governments never learn. Only people learn."

With no policy change expected and no press conference scheduled at Wednesday’s Federal Open Market Committee (FOMC) meeting in the US, attention will be focused on the post­meeting statement. I expect the tone of the statement to be modestly upbeat as compared to the previous statement. With the March FOMC meeting, and the recent speech by US Federal Reserve Chair Janet Yellen at the Economic Club of New York, the Fed has changed strategy. It is now more cautious and more aware of global conditions and, as a result, don’t believe it will change this approach again so quickly. In my view, it is a close call between one or two interest rate hikes this year, with the first hike not coming until July at the earliest. The US economy has plenty of steam to continue expanding. On top of this, if the Democrats win the White House (and it’s likely they will), we will undoubtedly see fiscal expansion and increased government spending funded by a higher deficit and higher taxes. The S&P500 Index (SPX) above 2100 will beget volatility, since it’s within touching distance of its all­time high. I would advise not to be deterred by volatility and instead build new long positions in favourite stocks or Indices when the opportunity presents itself. If a Brexit referendum were to be held today, the Remain camp would win. Whatever the result on June 23, the Brexiters are not going anywhere, unless the Remain camp wins by more than 20 points or more, and that is highly unlikely. Low interest rates are making life challenging for Germany’s savers and politicians. German Finance Minister Wolfgang Schäuble, earlier this month launched an extraordinary attack, blaming ECB President Mario Draghi for the surprising success of the Eurosceptics in German state elections. Comments like these are very dangerous for the future of the Eurozone.

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