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…

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…

U.S. rates — The Draghi floor

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

ECB action this week maybe not enough to restore confidence by itself, but it signals a readiness to defend the inflation target, thus lowering odds of Japanification. U.S. growth accelerating into September 16-17 FOMC meeting. Look for another cut to bond purchases and more clues on the exit game plan. In typical fashion, last week’s European Central Bank (ECB) announcements found a way to bury the lede. The deposit rate cut to -20 basis poin…

U.S. rates — When the facts change

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

…her factors argue for caution around interest rate risk in the months ahead: 1. More clarity on Europe. Last week’s action from the European Central Bank (ECB) was an important step toward “goal-oriented monetary policy.” The ECB eased policy because inflation expectations declined to intolerably low levels, and the governing council did not let political economy constraints or concerns about weak instruments stand in the way. This type of approa…

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.  …