Perspectives Blog

Inflation consternation

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

…correlation with the U.S. led to some level of normalization in the euro rate curve. The expectation of imminent easing by the ECB should assert further downside pressure on yields, and lead Bunds to outperform other markets. Rather than easing, monetary policy has actually been in tightening mode in recent months, as excess liquidity has drained from the system following early Long-Term Refinancing Operation (LTRO) repayments. This adds to the c…

U.S. rates — The Draghi floor

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

…sustained recovery in the eurozone. We suspect that it will take better growth and inflation data, more monetary easing, or both, to re-anchor inflation expectations and restore confidence. But we now know the strike rate for the Draghi Floor, and this marks an important turning point for markets. The economy may muddle through a while longer, but deflation risks will be met with more monetary easing—limiting the odds of Japanification and the up…

Does Japan’s sell-off present buying opportunities?

Daisuke Nomoto, Senior Portfolio Manager | February 10, 2014

…benomics has already had a bigger impact on the Japanese economy and financial assets than the failed attempt at quantitative easing between 2001 and 2006 (see chart). Inflation has moved back into positive territory, and household income is rising (we expect a roughly 2% wage hike next fiscal year). The underlying trend in economic activity is solid today as shown in industrial production data, the Tankan survey and other economic indicators. Ha…

Could tapering be good for stocks?

Fred Copper, Senior Portfolio Manager | December 16, 2013

Despite all the discussion surrounding quantitative easing (QE), there has been little theoretical justification for the link between QE and equity prices. Europe provides a glaring counter-example of the impact of central bank policy on financial markets. Once the psychic umbilical cord of QE is cut (tapered), the market may actually be cheered by the end of what has always been perceived as a temporary and extreme form of life support. Few i…

U.S. rates – Forward guidance taxonomy

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

…existing reaction function. In addition, this year’s guidance is backed up by a very strong form of commitment: quantitative easing (QE). Investors know that the Fed will not raise rates while they are still expanding the balance sheet. Plus, public communication from Fed officials suggests low odds that the pace of tapering ($10bn per meeting) will either speed up or slow down. We can therefore be reasonably confident that QE will continue—and…

India’s new government fires investor enthusiasm

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

…ened last year when India came to be regarded as one of the emerging economies most at risk once the tapering of quantitative easing (QE) got underway in the U.S. Exhibit 1: GDP has fallen to its lowest level in over 10 years Sources: Central Statistics Office, Consensus Economics, August 2014. The lack of an effective response by the previous government also exacerbated the slowdown. A mixture of several major corruption scandals and political…

What should U.S. bond investors expect in 2014?

Zach Pandl, Portfolio Manager and Strategist | January 6, 2014

…uspect that many would pick “taper.” The question of when the Federal Reserve (the Fed) would begin dialing back quantitative easing (QE) dominated market debates from the first taper hint in January until officials finally announced the change at their December meeting. With the process now in train and expected to continue at a steady pace throughout this year, the timing of the Fed’s QE exit is no longer the central question in the interest ra…