Publication date: 5 August 2015 | Covering: July 2015
Monthly Briefing
- FRESH: Fed July 28–29 holds 0–0.25% (7 days ago); says “some” further improvement needed; September hike still expected
- Greece: referendum OXI July 5; Tsipras reverses July 12–13; third bailout negotiations begin; capital controls continue
- Iran nuclear JCPOA deal July 14: historic agreement; potential return of Iranian oil to market
- China stock market crash: Shanghai Composite falls 30%+ from June peak; government intervention massive
- US Q2 GDP 2.3%; economy recovering after weak Q1; labour market strong
- BOJ easing; Jamaica IMF EFF; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed Holds; September Liftoff Remains Central Expectation
The Federal Open Market Committee held the federal funds rate at 0 to 0.25 per cent at its July 28 to 29 meeting, as markets had expected. The July statement described the labour market as having “continued to improve” and noted that underutilisation of labour resources had “diminished somewhat further”. On inflation, the Committee maintained its view that below-target readings reflected the transitory effects of lower energy prices and a stronger dollar. The statement noted that the Committee needed to see “some further improvement” in the labour market before raising rates — a formulation that left markets interpreting September as the most likely date for the first hike. US economic data through July had been broadly constructive: second-quarter GDP growth came in at an annualised 2.3 per cent, a recovery from the weather-disrupted 0.6 per cent of Q1, and the June payrolls report showed 223,000 jobs added, bringing the unemployment rate to 5.3 per cent. Chair Yellen, in her semiannual testimony to Congress in mid-July, reinforced the expectation of a 2015 rate hike, stating it would be “appropriate to begin normalizing interest rates sometime this year”.
Greece: From OXI to Capitulation in Eight Days
The Greek sovereign debt crisis reached its most dramatic moment in July. On 5 July — the same day this review publishes for the June edition — Greek voters delivered a resounding 61 per cent OXI (“no”) in the referendum called by Prime Minister Tsipras, rejecting the terms of the creditors’ programme. Financial markets had feared the referendum would force a eurozone exit; the decisive no vote added to the uncertainty. Capital controls remained in place throughout July, with Greek banks open only for limited cash withdrawals. Then, in one of the most extraordinary reversals in modern European political history, Tsipras returned to Brussels within days and by 12 to 13 July had agreed to a set of conditions for a third bailout that were in several respects more demanding than those his voters had rejected. The deal included a €86 billion programme from the European Stability Mechanism, stringent fiscal targets, privatisation commitments, and pension reforms. The Greek parliament approved the measures on 16 July, with Tsipras relying on opposition votes to carry the package. The immediate eurozone rupture risk had passed, and Greek banks reopened on 20 July with relaxed capital controls, though restrictions on larger transactions remained.
Iran Nuclear Deal and China Stock Crash
The Joint Comprehensive Plan of Action — the Iran nuclear framework agreement — was finalised in Vienna on 14 July, reaching a comprehensive accord between Iran and the P5+1 powers (US, UK, France, Germany, Russia, China) after years of negotiations. The deal provided for the lifting of international sanctions on Iran in exchange for verifiable limits on Iran’s nuclear programme. The potential return of Iranian oil to world markets — estimated at up to one million additional barrels per day over time — added downward pressure to oil prices that were already declining on oversupply concerns. China’s stock market continued its dramatic correction through July: the Shanghai Composite had peaked in June above 5,100 points and had fallen by more than 30 per cent from that peak by early July, despite massive government intervention including a suspension of IPOs, restrictions on short-selling, and direct purchases of equities by state-owned institutions. The intervention partly arrested the decline but at the cost of further distorting the market structure.
Jamaica Mortgage Market in July
Jamaica’s mortgage market maintained its steady trajectory through July 2015. The Bank of Jamaica’s easing monetary policy continued to provide a supportive domestic lending environment, and the IMF EFF programme’s macroeconomic framework maintained lender and investor confidence. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent continued to anchor the affordable housing finance market. The summer diaspora engagement season brought property enquiries from overseas-based Jamaicans. The tourism sector continued to perform strongly, providing a positive income backdrop for the economy and supporting the upper segments of the residential property market.
Looking Ahead
The Federal Reserve’s September 16 to 17 meeting has become the central event on the global monetary policy calendar, with market expectation for the first rate increase since 2006 still running at around 50 per cent. China’s stock market correction and its potential impact on growth, and the trajectory of global commodity prices, are the key variables that could alter that expectation. For Jamaica, the approaching peak of the Atlantic hurricane season and the continued progress of the IMF programme are the primary near-term considerations. The mortgage market is expected to see its seasonal post-summer pick-up in applications through August and September.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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