Fed leaves rates on hold and balance sheet reduction is coming soon

No surprises from the US Federal Reserve (Fed) with interest rates being left unchanged at the meeting last Wednesday. The statement contained some tweaks in wording with job gains now upgraded to “solid” and inflation is noted as “running below 2%”. Meanwhile, balance sheet reduction (the unwinding of quantitative easing) is now expected to take … Continue reading “Fed leaves rates on hold and balance sheet reduction is coming soon”

Central banks spark confusion

Investors were clearly rattled by the mixed messages emanating from central banks in June, which sparked a sell-off in government bonds. The Federal Reserve at least has been fairly clear about its direction of travel. It has struck a more hawkish rhetoric recently, as policy makers become increasingly confident on the outlook for the US … Continue reading “Central banks spark confusion”

Global liquidity and emerging markets

Emerging markets have benefited from an extremely accommodative environment but global liquidity conditions are becoming less easy than they used to be. Today we find ourselves in a world where central banks are reviewing their unconventional stimulus measures. The European Central Bank (ECB) is discussing tapering quantitative easing (QE) while the Federal Reserve (Fed) is … Continue reading “Global liquidity and emerging markets”

Movin’ On Up

For UK investors all eyes were on the General Election in June, but despite the surprise result, markets took it in their stride. Of more interest to us, than the ongoing domestic political noise, has been the move of Central Banks over the month towards tightening monetary policy. In the US, the Federal Reserve raised … Continue reading “Movin’ On Up”

What is normal for the Fed?

As expected, the US Central Bank has raised interest rates to 1.25% and talked about normalising its policy. The statement included detailed guidance on what the Federal Reserve intends to do next. During the financial crash and its aftermath the Fed bought up large quantities of Treasury bonds and mortgage backed securities, forcing interest rates … Continue reading “What is normal for the Fed?”

Has unconventional monetary policy had its day?

“People will always try to stop you doing the right thing if it’s unconventional,” so said Warren Buffett in an interview for Time magazine in 2008.  Buffett wasn’t referring to monetary policy specifically, but there’s some truth in his adage if we apply it to the more controversial tools that central banks have used since … Continue reading “Has unconventional monetary policy had its day?”

Why we are still optimistic

When we sat down this week to review world markets and world economies the surprising thing was how few surprises there have been so far this year. We expected the euro to survive its brushes with mortality in the Dutch and French elections. It has done so. We like many have forecast reasonable growth of … Continue reading “Why we are still optimistic”

The case for ending negative rates early

Few interventions in history of central banking have been as dramatic as the European Central Bank’s (ECB) expansion of its balance sheet to over €4tn to support the eurozone. The strengthening economic recovery in the eurozone and pickup in inflation mean the debate on how to make an elegant exit from its emergency measures is … Continue reading “The case for ending negative rates early”

Fed policy: it’s conditional

Remarkably few economic decisions depend directly on the interest rate set by the US Federal Reserve (the Fed). Yet with this tool, the central bank is able to exert vast power over the US economy and to steer it towards the Fed’s dual mandate of full employment and 2% inflation. The key to understanding how … Continue reading “Fed policy: it’s conditional”

Foreign exchange: a major contributor to portfolio returns

In recent years, subdued global inflation and weak growth have allowed the world’s major central banks to keep monetary policy at extremely accommodative levels. However, this may be changing, as global growth and inflation forecasts have risen amid a shift towards fiscal stimulus in a number of developed economies. With the Federal Reserve (Fed) simultaneously … Continue reading “Foreign exchange: a major contributor to portfolio returns”

What happens when rates go up?

A look at the implications of rising interest rates in the US. The US Federal Reserve has begun the painstaking process of raising interest rates, up to 0.5% to 0.75% in December, and has signalled 2017 will contain more of the same. We believe that strong fundamentals support the idea that the US stands to … Continue reading “What happens when rates go up?”

Has the US market risen too far too fast?

Markets do not normally go up in straight line. They usually have pauses for reconsideration and bouts of fear. Investors got over their shock and dismay at the election of Mr Trump very quickly. Share markets soon latched on to the reflationary potential of the Trump tax cuts, proposed increased infrastructure spending and more interventionist … Continue reading “Has the US market risen too far too fast?”

Volatile bonds: What is happening to interest rates?

This year the US, UK and German bond markets have moved together. Whatever the news, rates have followed similar trends and patterns. It is true US rates have stayed the highest of the three, and German rates by far the lowest. In each market rates fell from their highs on 1 January to reach new … Continue reading “Volatile bonds: What is happening to interest rates?”

Has QE failed, and if so why are markets clamouring for more?

The aim of Quantitative Easing [QE] was to support global economic growth in the wake of the Global Financial Crisis, and help to push GDP growth back towards its trend rate, typically around 3.2 – 3.5% for the world and 2 – 2.5% for the UK. This would allow the amount of outstanding debt to … Continue reading “Has QE failed, and if so why are markets clamouring for more?”

A weak yen boosts Japanese equity markets

Equity markets across Asia generally declined during October, dampened by uncertainties over the outcome of November’s US Presidential election and a drop in the price of oil. In comparison, Japanese equity markets rose relatively strongly during October, boosted by a weakening in the value of the yen. The Nikkei 225 Index rose by 6.1%, while … Continue reading “A weak yen boosts Japanese equity markets”