More Inflation
The potential reduction in U.S. stimulus has strengthened the dollar against 14 of the world’s 16 major currencies this year, attracting global investors to appreciating asset values. In countries such as Brazil, the weaker exchange rate makes imports more expensive and threatens to drive prices for consumers higher. The Indian central bank raised two interest rates in July to contain the rupee’s decline. The currency touched an unprecedented 62.0050 per dollar last week.
“Slow growth, more inflation and tightening central bank policy is not a good combination,” said Michelle Gibley, director of international research at San Francisco-based Charles Schwab Corp. The firm manages $2.12 trillion in client assets. “Part of the whole idea of QE was to push investors into riskier assets, and now they’re doing the opposite.”
The U.S. rally pushed the S&P 500’s valuation up 13 percent to 16 times reported operating earnings, close to the highest level since May 2010, data compiled by Bloomberg show. Declines from Chile to Turkey left the MSCI index’s multiple at 9.4, down 7.5 percent since the end of last year and close to the lowest since 2009.