United States investors are selling out of safe-haven
bond markets and moving into riskier investments, such as
shares, as the recovery in the world's largest economy
The Dow Jones Industrial Index is a few points short of
reaching the significant 17,000 mark and has shown gains for
six consecutive quarters.
Craigs Investment Partners broker Chris Timms said as the US
economy improved, interest rates on bonds would be overtaken
by returns being offered on the sharemarket.
The Dow hitting new highs almost daily was a result of people
who had held off investing for a long time returning to the
''The US seems to be past the early stages of recovery being
seen in Europe. The tapering of bond buying by the Federal
Reserve is removing the artificial stimulus, with the Fed
believing the economy can start standing on its own.''
In contrast, the European Central Bank (ECB) was trying to
stimulate the economy by forcing banks to lend money by
introducing negative interest rates, he said.
The New Zealand market was more subdued because New
Zealand's economy had been improving strongly. Investors were
becoming more selective about where they invested.
As interest rates rose again this month, a ''trickle'' of
people were likely to pull out the market and lock in solid
long-term interest rates in banks and other financial
institutions, Mr Timms said.
However, there would still be a certain amount of money
flowing into the sharemarket as superannuation schemes
continued to grow in value.
Also, as overseas economies improved, investors in those
countries were likely to invest closer to home, he said.
Details of the ECB announcement overnight would be watched
closely as the dust settled after the package was announced
Mr Timms said the 24-member governing council was unlikely to
take a fresh approach at its July meeting after cutting
interest rates to record lows last month and revealing its
400 billion ($NZ623 billion) loan programme.
It was not clear how the central bank would enforce its loan
policy, he said.
Clarification on how long the ECB intended to keep interest
rates low would be a key to the take-up of loans, called
targeted long-term refinancing operations (TLTROs).
Federal Reserve chairwoman Janet Yellen said in a speech
monetary policy faced ''significant limitations'' as a tool
to counter financial stability risks. Heading off the US
housing bubble with higher interest rates would have caused
major economic damage.
Dr Yellen reiterated her view regulation - not rate policy -
needed to play the lead role in combating excessive financial
The International Monetary Fund last month said a prolonged
period of ultralow US rates - near zero since late-2008 - had
prompted a weakening in lending standards and risky behaviour
Bank of England chief economist Andy Haldane said raising
interest rates was the bank's last line of defence against
asset price bubbles as British house prices posted their
largest rise in nine years.
Figures out yesterday showed house prices rose by nearly 12%
in the year ended June and were more than 25% higher in
London, the sharpest increase there since the eve of the 1987
Last week, the central bank set limits on how much most
Britons could borrow to buy a home and required lenders to
undertake more stringent checks on whether borrowers could
cope with higher interest rates. New Zealand Institute of
Economic Research economist Kirdan Lees said there were
lessons for our Reserve Bank from the Bank of England's
approach. Loans more than 4.5 times income could be only 15%
of new mortgage lending.
''We like this approach to financial stability because it
directly targets risk: can people afford to pay back their
mortgage? In contrast, restrictions on the loan-to-value
ratio [LVR] do this only indirectly.''
The Bank of England acknowledged it was not its role to
control house prices. Nor was the policy designed to provide
lower interest rates to help achieve monetary policy growth,
Dr Lees said.