Perspectives Blog

Quality milestone in the European recovery story

March 17, 2014

Business, economic and political news all point to a strengthening recovery in Europe. We foresee a period of low inflation and low interest rates in Europe. We favor domestic European plays over internationally-exposed stocks, with an overweight stance in banking and telecoms. By Paul Doyle, Head of Europe ex. UK equities and Frederic Jeanmaire, Fund Manager, Threadneedle Investments After 18 consecutive negative months, the flow of eurozone

Is Europe heading for Japanese-style deflation?

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

Although there are many differences that should ensure that the eurozone does not follow Japan‘s fate, policymakers will need to act forcefully if the risk of deflation intensifies. While the euro area appears to be on track to avert deflation in the short term, many euro countries are “one crisis away from deflation.” The European Central Bank (ECB) claims to be ahead of the game, but policy needs to be more pro-active. The following is an ex…

An improving outlook for European equities

Philip Dicken, Head of European Equities, Threadneedle International Ltd | October 18, 2013

Economic data confirm that the Eurozone has exited recession. There are signs that corporate transactional activity is increasing as businesses become more financially secure. While Europe remains beset by challenges, the economic background is improving, valuations are looking more attractive and investors who have not been paying attention to European stocks may want to take a closer look. According to Eurostat, the 17 eurozone member states…

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…

European equities – Should investors care about periphery vs. core anymore?

Dan Ison, Portfolio Manager | January 13, 2014

The more dramatic the economic reforms, the better the stock market performance in the eurozone We expect nominal growth to be the key driver of an improving earnings picture in Europe European equities should show further good returns to investors in 2014 As we enter 2014 there are the usual questions, conversations and strategy pieces extolling the virtues of different regions and asset classes. 2013 saw a phoenix-like resurgence in interest…

Bond yields are too low somewhere

Zach Pandl, Portfolio Manager and Strategist | July 14, 2014

…imply be higher forward rates. In our view this is at least partly correct, and we expect higher G10 forward rates in general over time. However, this conclusion is admittedly not obvious in light of the challenges facing the eurozone and Japan. In both cases persistently low rates might be required to achieve a full economic recovery. Second, even if low rates are warranted in some areas, this will certainly not be true for all economies—bond yi…

U.S. rates — The Draghi floor

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

…om the governing council. Thus, investors should infer the existence of a “Draghi Floor” on inflation expectations—struck at around 2.1% for 5y5y inflation swaps (Exhibit 1). Below this level the ECB will act. Exhibit 1: 5y5y eurozone inflation swap rate So has the ECB done enough? Perhaps not. Unlike the Fed’s use of unconventional monetary policy over the last six years, there was no “shock and awe” moment—something definitively convincing inv…