Perspectives Blog

U.S. rates – Headwinds

Zach Pandl, Portfolio Manager and Strategist | March 17, 2014

…y to determine whether monetary policy is easy or tight. The diagram below illustrates the basic point. Monetary policy responds to the output gap (the reaction function) and also affects the size of the output gap (the normal transmission mechanism). However, there are many other things that affect the output gap besides monetary policy. These can include non-financial factors like fiscal policy and oil prices, as well as financial headwinds/tai…

Does a perfect policy portfolio exist?

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | May 5, 2014

…Parity represents a significant advance in asset allocation, but we don’t believe that there is a single perfect policy portfolio. While Risk Parity works well in neutral markets, we don’t think it is the best policy under bearish, bullish or highly bullish market conditions. We believe that a policy function that rotates among four distinct policy portfolios is closer to perfect than any single policy portfolio. The idea of a policy portfolio,…

Is Europe heading for Japanese-style deflation?

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

…-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 from here. However, the ECB faces many institutional impediments that could hinder the process and has some way to go if it plans to rival the aggressive policies of other nations since 2008. Fiscal policy: Although monetary policy was arguably too tight in Japan, fi…

ECB asset purchases — Bazooka or damp squib?

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

…ning council to commit to private sector asset purchases at its September meeting. Is the market telling us that policy is impotent against the gathering deflationary forces? Inflation expectations The measure of inflation expectations cited by Mario Draghi as justification for policy easing, the 5-year 5-year forward inflation breakeven (Exhibit 1), has remained remarkably stable over recent years as the spot CPI has ebbed and flowed. In fact, i…

India’s new government fires investor enthusiasm

Natasha Ebtehadj, Fund Manager, Threadneedle International Limited | September 8, 2014

…s used and returns trend back to more normalized levels. Moreover, India is well positioned in terms of monetary policy given that it has already been through the tightening cycle and inflation is easing. Indeed, India could be one of the few countries where the central bank can loosen monetary policy going into 2015, when the developed markets are likely to be entering a tightening phase. India’s long-term potential remains clear: the so-called…

U.S. rates — Data dependence

Zach Pandl, Portfolio Manager and Strategist | June 23, 2014

…ve reacted more to recent news. But we saw enough evidence of data dependence yesterday to remain convinced that policy will turn more hawkish as inflation and unemployment gaps close. Central bankers often say that policy is “data dependent”, but it’s not immediately clear what they mean by that phrase. One should hope that at some level monetary policy always depends on the outlook for the economy, so emphasizing data dependence can seem like s…

Rebalancing the U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | January 13, 2014

…this year. Receipts are up 13% and outlays are down 5.5% in the last year—this is admirable progress. The easing fiscal drag will add to GDP via less subtraction. Indeed, private sector real GDP growth (GDP less government expenditures) is up 3% in the last 12 months versus overall real GDP at 1.7%. With the fiscal drag receding, monetary policy will also begin to normalize, providing less accommodation as large scale asset purchases wind down. T…