Perspectives Blog

Inflation consternation

Martin Harvey, Fund Manager, Threadneedle International Ltd | November 5, 2013

An inflation slowdown in the Eurozone has prompted calls for central bank action, as reduced liquidity coupled with euro strength threatens the recovery. The expectation of imminent easing by the ECB should assert downside pressure on yields, and lead Bunds to outperform other markets. It is uncertain whether the ECB will act this week; we think any intervention is likely to be verbal, at least at first. October inflation in the eurozone slowe…

Is Europe heading for Japanese-style deflation?

Martin Harvey, Fund Manager, Threadneedle International Ltd | August 4, 2014

…remainder of the decade. This process was something of a slow death for the Japanese economy, and many of these reasons have been highlighted as differences with the current situation in the eurozone. The key question for the ECB to answer is whether the differences are sufficient to dismiss the possibility of deflation, as the Japanese experience proves that once the process is underway, it is difficult to reverse. Progress report for Europe In…

Quality milestone in the European recovery story

March 17, 2014

…buted. However, from a low base, there is potential for European growth to catch-up with other faster-growing areas of the globe. Political news has provided a further boost, with the German Constitutional Court referring the ECB’s Outright Monetary Transactions policy to the European Court of Justice, rather than rejecting it. This has been interpreted as a capitulation by the Germans in terms of their reluctance to support the European Union an…

Asset allocation – Kinetic vs. potential energy

Columbia Management Global Asset Allocation Team, | August 4, 2014

…(ECB) to introduce new stimulus measures in June. Analysts have also reduced earnings growth estimates sharply from overly optimistic earnings expectations at the beginning of the year. It remains to be seen whether these new ECB measures will be enough to stimulate lending, but for the moment Europe once again appears vulnerable to shifting sentiment in addition to further downward revisions to profit expectations.  …

Global market mid-year outlook

Mark Burgess, Chief Investment Officer, Threadneedle Investments | June 16, 2014

…tions (LTROs) to aid bank lending and has said that it will intensify preparatory work related to outright purchases of asset-backed securities. Whether this policy response will work remains to be seen, but it shows that the ECB is definitely not resigned to a protracted period of low inflation. In emerging markets, we remain positive on local currency emerging market debt (EMD) in our asset allocation matrix; we have commented recently on the v…

Interpreting the bond rally from a multi-asset perspective

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | June 2, 2014

A framework for identifying capital market states can help set expectations for markets in the aftermath of the recent bond rally. Our framework suggests a highly bullish market state for equities although that market state would shift to bearish if conditions became more neutral. While we expect ongoing strength in equities (which should pressure bond markets and drive yields higher), the durability of strong performance in risk asset markets…

Could tapering be good for stocks?

Fred Copper, Senior Portfolio Manager | December 16, 2013

…support this is weak as well. Second, there is a glaring counter-example of the impact of central bank policy on financial markets, which is Europe. As you can see in the chart below, despite a fairly steep contraction of the ECB’s balance sheet, equity markets have powered ahead. Bond yields, even in the troubled peripheral markets, have continued to decline. It’s hard to reconcile the notion of a positive causal link between central bank balanc…