Publication date: 5 October 2015 | Covering: September 2015
Monthly Briefing
- FRESH: Fed September 16–17 holds 0–0.25% (19 days ago): surprise hold citing “global developments”; China/EM cited explicitly
- China Black Monday August 24: Shanghai Composite falls 8.5% in single session; global equities fall sharply
- Yuan devaluation August 11–13: China shocks markets with managed depreciation; currency war fears
- Commodity prices collapse across board: copper, iron ore, oil all at multi-year lows
- Greece: third bailout €86 billion agreed August 14 after July drama; Tsipras calls snap election for September 20
- BOJ easing; Jamaica IMF EFF; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed’s September Surprise: Global Conditions Trump Domestic Data
The Federal Open Market Committee’s decision to hold the federal funds rate at 0 to 0.25 per cent at its September 16 to 17 meeting was one of the most significant monetary policy surprises of the post-crisis period. Markets had assigned a 30 to 40 per cent probability to a September hike, and a significant minority of economists had expected the Fed to act — ending the longest hold at the zero lower bound in US history. The Committee’s reasoning was explicitly stated: “global economic and financial developments” had created heightened uncertainty and had “tightened financial conditions to some extent”. The reference was unmistakably to the turmoil emanating from China and its ripple effects through emerging market currencies, commodity prices, and US financial market volatility. The September hold represented a significant new precedent: the first time the FOMC had explicitly cited international developments as the reason for not acting when domestic conditions might otherwise have warranted a move. For emerging market and Caribbean policymakers, the acknowledgement of global spillovers into Fed deliberations was a meaningful recognition of the interconnectedness of the global financial system. Chair Yellen, at the press conference, emphasised that December remained a live meeting and that she personally expected one hike in 2015 — pointing almost directly at December.
China’s Black Monday and Yuan Shock
The proximate cause of the Fed’s September hesitation was the dramatic sequence of events in Chinese financial markets through August. On 11 August, the People’s Bank of China made the unexpected decision to devalue the yuan by 1.9 per cent against the dollar and switch to a more market-oriented daily fixing mechanism. The devaluation — the largest single-day move in the yuan in two decades — was interpreted by many as a sign that China’s economy was under more pressure than official data suggested, and that Beijing was willing to deploy currency depreciation as a tool. Fears of a broader devaluation spiral, and its implications for trade competition and capital flows, sent shockwaves through global markets. The Shanghai Composite had already been falling sharply from its June highs; on 24 August, it collapsed by 8.5 per cent in a single session — the largest one-day fall since 2007 — triggering a global “Black Monday” in which major equity indices fell sharply: the Dow Jones fell nearly 1,000 points in early trading before recovering, and the S&P 500 briefly entered correction territory. The episode sent commodity prices, already under pressure from slowing Chinese demand, to fresh multi-year lows.
Greece’s Third Bailout and Political Drama
Greece secured a third bailout agreement of €86 billion from the European Stability Mechanism on 14 August, following a period of extraordinary political and financial drama in July. The deal came after the Greek parliament, led by Prime Minister Alexis Tsipras, approved a package of reforms that was in several respects harsher than the programme Greek voters had overwhelmingly rejected in the 5 July referendum. Tsipras subsequently called a snap general election for 20 September, which his SYRIZA party won with a reduced majority, forming another coalition government. Greece’s third programme involved €86 billion in new financing in exchange for comprehensive structural reforms, significant bank recapitalisation, and debt maturity extensions. The Greek drama occupied European financial markets intensely through July and into August before the crisis was provisionally resolved. Jamaica’s own experience of sovereign debt restructuring and IMF programme adjustment meant the Greek episode was watched with a degree of recognition by local policymakers, though Jamaica’s circumstances differed fundamentally in structure and trajectory.
Jamaica Mortgage Market in September
Jamaica’s mortgage market absorbed the global turbulence of August and September with relative stability. The BOJ’s monetary easing and the IMF programme’s macroeconomic framework continued to provide a supportive domestic foundation. Oil prices near multi-year lows were beneficial for Jamaica’s energy import bill and consumer prices. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent continued to define the affordable housing finance architecture. Commercial lenders were cautiously monitoring external conditions, but the domestic lending environment was gradually improving as the BOJ’s rate reductions fed through. The September period typically sees renewed property market activity after the summer school-holiday period concludes, and NHT applications were reflecting the seasonal pattern.
Looking Ahead
The Fed’s October 27 to 28 meeting is next, with December the now most likely venue for the first rate hike. The global financial conditions that deterred the September move will be monitored closely: any re-escalation of China market stress or further EM currency pressure could again delay the hike. For Jamaica, the IMF programme review and the fiscal year half-year budget assessment are the primary near-term policy markers. The mortgage market is expected to remain broadly stable, with the NHT’s continuing scheme activity and the BOJ’s easing trajectory the key domestic drivers through the fourth quarter.
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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