Kathleen Brooks, Research Director for City Index, joined Nick Batsford and Richard Hunter at Tip TV to discuss the China devaluation, the USD, the US rate hike, Oil and equities.
China devaluation not great for China
Brooks began by noting that she didn’t expect the China devaluation, before adding that the devaluation is unlikely to boost anything. She commented that it is likely to lead to a huge amount of capital outflow, which is good for the UK property market, and also brings about uncertainty in policy.
USD doesn’t move with interest cycles as you would expect
With the FOMC minutes being released on Wednesday, and being one month away from the FOMC meeting, Brooks noted that whenever there has been a tightening cycle the USD has actually fallen over the last 30 years. The USD is also unlikely to be unsettled by the rate hike, with Brooks commenting that the Fed will urge on the side of caution and thus she will be surprised if the hike occurs in September.
Not a buyer for choice on oil
The situation doesn’t feel right concerning oil, according to Brooks. She noted that there is too much supply, with Iran producing at the highest level for the last 6 years, whilst China’s demand likely to fall further with its weakening economy. Brooks also continued that oil will remain in a tight range for the next while.
Good environment for equities
Brooks finished by expressing that equities are in a good environment, with low inflation, interest rates and oil prices, meaning firms still have pricing power. However, she does outline a warning over big blue chips in the near future, including large oil companies and heavy exporters to China like BMW, and instead focus on smaller companies in areas such as Spain.