European stocks saw an unexciting start to Tuesday’s trading day as the pan-European STOXX 600 index opened 0.17 percent higher. Most sectors were in positive territories except for oil, gas and basic resources. In Asian trading, Japanese shares fell in early trading, but reversed their losses after the data was released showing positive trends in household spending, retail sales and unemployment numbers. U.S. markets closed higher on Monday as traders looked ahead to this Friday’s upcoming non-farm payroll report and analysts mulled a September interest rate hike, though by Tuesday the implied chance of a rate hike had cooled from 44 percent on Monday to only 36 percent.
What Does the Interest Rate Issue Mean?
Traders have been speculating for months about the potential interest rate hike in the U.S., but what exactly this means for the global economy is somewhat of an enigma. The United States, Japan and Europe have all relied on low interest rates to boost spending by businesses and consumers even when government spending itself is limited. Some analysts worry, however, that this system may be nearing the end of its test run. The European Central Bank and the Bank of Japan have both pushed interest rates into negative territory, though despite this implied push for spending, inflation and job growth have remained weak, indicating that low interest rates aren’t necessarily the economic solution they were intended to be.
According Fed Chair Janet Yellin, “Even if average interest rates remain lower than in the past monetary policy will, under most conditions, be able to respond effectively.” This may be, perhaps, just one more attempt to calm the masses before the impending changes.