Investors are over-reacting to fears about the US Fed hiking rates this year

Investors are over-reacting to fears about the US Fed hiking rates this year. It is hard to see why a near-term rate hike is required as 2014 growth is likely to be the weakest since 2009, inflation is below the +2% target rate, wages pressure is benign and asset bubbles are not present in the housing and share markets. The market most exposed to a higher global cost of capital is not the US, it is Europe, where debt in some countries is more than double the sustainable levels (60% of nominal GDP), deflationary pressures are building and Italy (which has third highest amount of government debt on issue in the world) is now back in recession. This region is the one where higher rates (from the US) will be felt the most and it will be the area which cracks under the weight of its own debt. (VIEW LINK)