American Consequences - June 2017

JUNE 9 UK election results in hung Parliament Theresa May’s decision to call a snap election looks to have been the wrong call as her party failed to keep as many seats prior to the election and no party has the majority rule. She has stated she will not resign and will seek permission from the Queen to form a government. Brexit negotiations will most likely be more complicated and the British Pound was pummeled, falling as much The intent of this rule is to protect investors from getting over-charged for investment advice. Department of Labor analysis has found that many, many people have had their money invested in higher cost products when there are lower cost products available and they do the same thing. Seems fair. However, the Labor Secretary, Mr. Acosta, has left open a rewrite of the as 2.4%. JUNE 9 Fiduciary Rule implemented

legislation that will curtail a lot of the legislated rules. The argument has to do with pulling back regulations to create a more business friendly environment. There must be a middle ground. People need sound advice and when the markets get rattled, having a real hand to hold will aid performance. But the fee structure is disrupted and working towards a fair resolution as opposed to lobbying for status quo is a logical plan. JUNE 13 & 14 Federal Open Market Committee (FOMC) meeting As expected, the FOMC raised the federal funds rate by 25 basis points. What is more important is the language that follows the decision around the inflation picture and what the Fed intends to do with its balance sheet... The comment that they are “monitoring inflation developments closely” does not instill confidence on growth. Inflation is a key signal, and the data continues to moderate.

Rising rates coupled with slowing inflation typically leads to an erosion in equity value. Keeping it simple, the Fed owns trillions of dollars’ worth of Treasury and mortgage-backed debt. Much of this is longer in duration. The perfect plan would be a gradual unwind- selling of these assets, which would ever so slightly raise long-term rates. The easiest way to conceptualize this is the U.S. – the sovereign buyer – has been a consistent buyer of these assets for years now. Removing that buyer would cause prices to dip and interest rates to rise. Exactly what financials and insurance companies are banking on. WATCH THESE DATES June 23 : Markit U.S. Manufacturing, Services, and Composite Purchasing Managers Index – gives us a good idea on growth. June 30 : PCE inflation data released. This is a key inflation gauge for the Fed. July 5 : FOMC minutes released.

12 | June 2017

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