when you create a shape layer, you are actually create a shape inside a layer, so notice your anchor point. position is relative to where your anchor point is and you can see it's in the center of the layer, but not the center of the shape.
so now what you should do is reset your anchor point to the middle of the shape and that's easily done with a shortcut Ctrl+Alt+Home (also under transform->center anchor point in layer's content). once you do that, all will fall into place.
Thank you so much! It worked like a charm. Can you just tell me how I do it without the shortcut? Unfortunately option 'centre anchor point' is not there. I only see the 'anchor point' option with a stopwatch and it's not what you meant I guess because it does not centre the anchor point. I need to know it for future reference. And can you just tell me how I create a colour adjustment layer in the magnifying effect so that the photo underneath it not only gets magnified but also changes the colour? I tried to do it in the effect control panel by changing blending mode to colour but for some reason when I do that, the magnifying effect disappears.
Again many, many. many thanks for your help!
Right click on the layer-> transform or layer menu->transform, not timeline transform. Should have been more clear
as for color you can add to the adjustment layer a color correction effect like tint.