Perspectives Blog

Income inequality, disinflation and profit growth – the role of globalization

March 10, 2014

…e a financially unstable and unsustainable dynamic that culminated in the global financial crisis. We postulated that the lack of willingness on the part of banks to recreate this unsustainable dynamic would deliver a drag to consumption growth in developed markets. This week we consider the degree to which income inequality is a global phenomenon. Many countries in emerging markets (EM) have high and rising levels of income inequality with atten…

Inflation consternation

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

…tral Bank (ECB) action on November 7 or the December meeting. Previously, ECB President Mario Draghi has said lower inflation due to factors such as energy prices is actually positive, as it boosts disposable income and hence consumption. For sure, some of the October decline comes from energy base effects given that annual energy inflation fell to -1.7% year over year. But this doesn’t explain all of it. From a country perspective, a lot of the…

The bean counting on second quarter GDP

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | July 25, 2013

…d the tax hit would cause consumers to cut back, but they remain resilient. Labor markets are producing steady job growth near 200,000 monthly, consumer confidence is improving, and income gains are slightly better. Of course consumption will be softer than the 2.6% advance in Q1, but lower inflation and a dig into savings appears to have helped consumers maintain their purchases of durable goods (think autos) at only a slightly slower pace. This…

Hanging in

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | September 20, 2013

…spending with interest rates leaping higher. Generally, spending trends remain in place with only some modest deceleration. Core retail sales (ex-autos, building materials and gas station sales) serves as a proxy for personal consumption in GDP, and this rose a puny 0.2% in August, the smallest gain in ten months and well below the usual 0.4% gain typically seen. In the last year, this is up 3.5% but only 1.6% after inflation. However, this does…

Slow growth: Why is it here and will it stay?

February 24, 2014

…al inflation to speak of in the United States. And so, by inference, the equilibrium real rate may well have fallen meaningfully. Exhibit 1 shows the three-year rolling real fed funds rate and three-year rolling core personal consumption expenditure deflation (the Fed’s preferred measure of inflation) over the past 30 years. Each cycle has experienced lower peaks and troughs in real rates but, despite this, inflation has been on a long-term decli…

Emerging Markets: Waiting on exports

Anwiti Bahuguna, Ph.D., Senior Portfolio Manager | March 31, 2014

…broken out of the 2%-3% range, the eurozone is no longer contracting but expectations are for growth of only about 1%, and there are questions regarding Japan’s ability to sustain any growth rebound with the advent of the new consumption tax. Global growth has simply not been strong enough to support high demand for EM exports. The question is whether a continuing gradual recovery will eventually translate into EM export acceleration or whether o…

Does Japan’s sell-off present buying opportunities?

Daisuke Nomoto, Senior Portfolio Manager | February 10, 2014

…) currency volatility, a default on a RMB3billion (U.S.$500 million) Chinese trust product, lingering political instability in Thailand, another $10 billion quantitative easing tapering decision, and finally, Japan’s upcoming consumption tax hike to 8% from 5%. The Japanese equity market was down almost 10% in just two weeks. What should we do with Japanese equity investments given the recent correction? We would like to discuss a couple of key…