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Week in review: loss of balance?

Week in review: Loss of balance?

This week: the Fed plans to reduce its balance sheet, Toys R Us files for bankruptcy and a student builds the world’s largest Game Boy.

Earlier this year, the U.S. Federal Reserve (Fed) said it was making plans to reduce its balance sheet, which is worth around $4.5 trillion. The portfolio ballooned under the central bank’s quantitative easing scheme, when it spent roughly $3.6 trillion on government bonds and mortgage securities in an attempt to boost the U.S. economy in the aftermath of the global financial crisis.

Up to now, the Fed has used the proceeds from maturing assets in its portfolio to buy more bonds. But after a policy meeting on Wednesday, it announced that this process will be scaled down from October onwards, with a small amount being allowed to “roll off” the balance sheet each month; the aim is to reduce the holdings to $3 trillion by 2021. U.S. interest rates were left unchanged, but 11 of the 16 members of the Fed’s rate-setting committee still expect one more hike in 2017. Most analysts believe this will take place in December.

Investors in U.S. equities were relatively relaxed about the central bank’s pronouncements. The S&P 500 Index reached a series of record highs during the week, closing above the 2,500 mark. Shares in banking and financial companies performed particularly well – they were popular among investors this week because higher interest rates usually have a positive effect on their profit margins.

Playing for time?

There was less upbeat news for one of North America’s best-known toy companies. To the disappointment of children all over the U.S. and Canada, Geoffrey the Giraffe and his helpers could soon be unstocking the shelves at Toys R Us, after the company filed for bankruptcy. The beleaguered purveyor of playthings, owned by a private equity syndicate since a 2005 buyout, has been struggling to meet debt repayments. A $2 billion loan, extended by a U.S. bankruptcy court, is intended to provide the chain with some breathing space before the Christmas shopping season.

Pay per plane

In Europe, another chief executive had to apologize to both customers and shareholders for his company’s organizational shortcomings. Ryanair’s Michael O’Leary said sorry to the 300,000 passengers who will be affected by the cancellation of as many as 50 flights a day between now and the end of October. He described the debacle, which reportedly stems from problems with pilot rosters, as a “mess of our own making.” On Thursday, he told Ryanair’s annual general meeting (AGM) that pilots would be offered a €10,000 (US$11,970) pay raise in exchange for helping out, in addition to a one-off bonus promised earlier in the week. In the UK, the FTSE 100 Index gained 0.67% over the week to close on Thursday.

And finally…

If you want to take your dedication to retro video games to the next level, you need look no further than Belgium. This week, Ilhan Unal, a student of multimedia and communications sciences, earned himself a spot in the Gamer’s Edition of Guinness World Records by building the world’s largest Game Boy. The replica of Nintendo’s iconic handheld console, which is two feet wide, is fully functioning, and according to Unal, poses quite a challenging workout for gamers. Apparently, an hour of play is enough to numb the player’s arm due to the strength required to press the huge buttons. Whatever else it is, it’s not Wii.

Important Information

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

Companies mentioned are for illustrative purposes only and are not intended to be a recommendation to buy or sell any security.

Indexes are unmanaged and are included for illustrative purposes only. You cannot invest directly in an index.

ID: US-220917-47577-1

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