Investors are confident that the US Federal Reserve, under its chair Janet Yellen, will raise interest rates further this year. Cliff Owen / AP Photo
Investors are confident that the US Federal Reserve, under its chair Janet Yellen, will raise interest rates further this year. Cliff Owen / AP Photo

Dollar steadies as investors await US inflation data



The dollar steadied in Asian trading on Tuesday, maintaining most of the gains it made on last week's robust employment data that kept hope alive that the US Federal Reserve could still increase interest rates this year.

The dollar index, which tracks the greenback against a basket of six major rivals, was steady on the day at 93.412 . It held well above last week's 15-month low of 92.548, though was shy of Friday's post-jobs data high of 93.774 as investors pondered the timing of the US central bank's next tightening steps.

"Looking to the Fed futures market, there's less than a 50 per cent chance of one more rate hike this year," said Bill Northey, chief investment officer at US Bank Private Client Group in Helena, Montana.

Investors also await clues as to when the Fed will begin shrinking its $4.2 trillion bond portfolio.

"The September meeting is where we are anticipating the identification of the start date and we would not be surprised to see it start in an almost an immediate fashion," he said.

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US producer prices for July due on Thursday and consumer price index figures on Friday will give investors a clue about the extent to which the strengthening labour market is spilling over into inflation.

Last Fridays' jobs report showed nonfarm payrolls increased by a bigger-than-forecast 209,000 jobs in July, while average hourly earnings increased 0.3 per cent to match expectations after rising 0.2 per cent in June.

Comments on Monday from St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari had a muted impact on the dollar.

Bullard said the Fed can leave interest rates where they are for now because inflation is not likely to rise much even if the US job market continues to improve.

The personal consumption expenditures (PCE) price index excluding food and energy, which is the Fed's preferred gauge of inflation, has been running at 1.5 per cent and has trended away from the central bank's 2 per cent target in recent months.

That measure is forecast to rise only to 1.8 per cent if the US unemployment rate falls to an "unprecedented" 3 per cent from the current 4.3 per cent, Bullard said. With so little upward pressure on inflation, the Fed does not need to raise rates to slow growth, he said.

Bullard's assessment provides market participants with further credence as to why the dollar has not strengthened much, even after the solid jobs data, Northey said.

Against its Japanese counterpart, the dollar edged up to 110.78 yen.

It was also steady against the euro, which was buying $1.1800.

On Monday, the single currency largely shrugged off an unexpected fall in German industrial production in June.

* Reuters

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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