Perspectives Blog

ECB asset purchases — Bazooka or damp squib?

Martin Harvey, Fund Manager, Threadneedle International Ltd | September 22, 2014

With inflation expectations declining to the levels that preceded the recent shift in policy, should the ECB and the financial markets be worried? In our view, the ECB probably won’t be wholly impressed by the reaction of inflation expectations to recently announced measures, and will be keeping a close eye on favored measures. We believe that we would need to see a further significant deterioration in growth and inflation expectations to kick…

A less certain world favors high-quality stocks

Philip Dicken, Head of European Equities, Threadneedle International Ltd | October 6, 2014

…timent indicators: turning down, but not in recessionary territory Source: Threadneedle, September 2014. Recent ECB policy action has highlighted the central bank’s commitment to anchoring inflation expectations. In early September, the ECB cut its main interest rate by 10 basis points and committed to purchases of asset-backed securities. Alongside the upcoming targeted longer-term refinancing operations, these purchases could boost the central…

Is Europe heading for Japanese-style deflation?

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

…ties between the current eurozone situation and Japan’s lost decade, Mario Draghi is quick to point out that the ECB reacted much more quickly than the Bank of Japan in the early 1990s. QE was eventually introduced in Japan in 2001 and was judged in hindsight as half-hearted due to its limited impact. In contrast, the ECB has emphatically stated that it stands ready to ramp up policy initiatives aggressively if inflation undershoots expectations…

Quality milestone in the European recovery story

March 17, 2014

…as 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 and the ECB’s backstop, and supports the bullish view of Europe’s prospects. The appointment of reformist Matteo Re…

U.S. rates — The Draghi floor

Zach Pandl, Portfolio Manager and Strategist | September 8, 2014

…works in the opposite way: the seller pays a buyer if interest rates fall below a certain threshold. This week’s ECB meeting—and comments from the Jackson Hole conference preceding it—can be thought of as revealing a “Draghi Floor.” The only substantive change between the August and September ECB meetings was that longer term inflation expectations fell sharply, and this shift prompted a meaningful easing from the governing council. Thus, investo…

U.S. rates — When the facts change

Zach Pandl, Portfolio Manager and Strategist | September 10, 2014

Prospective returns for Treasuries now look poor across the curve—not just at the front end. Yield curves tend to flatten as central banks raise short-term rates, but valuations have now moved beyond the point where these trades make sense. Investors should brace for higher interest rates, not just a flattening yield curve. When the facts change At the start of this year our views on U.S. interest rates were underpinned by two main facts: (1)…

Global market mid-year outlook

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

Overall macroeconomic picture in U.S. should push bond yields higher, particularly if the Fed stops its QE program later this year. We remain positive on emerging market debt while maintaining a bias against emerging market equities. Overall equity markets have been strong and current index levels suggest that investors still have confidence in the outlook for profits. Global equities and global bonds made progress in May with the former outpa…