16.02.10-CC-blog-1

How long until China reaches the floor of the recommended reserve adequacy range?

Much has been discussed on the topic of the optimal level of foreign exchange reserves. One of the common methodologies is the IMF’s ARA (Assessing Reserve Adequacy) metric, which essentially provides a range based on a country’s trade, broad monetary aggregates and external liabilities. How much weight should be given to each factor varies according to the economic structure of each country, i…

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16.02.08-JPJ-blog2

A quantitative analysis of US recession probabilities

Guest contributor – Jean-Paul Jaegers CFA (Senior Investment Strategist, Prudential Portfolio Management Group)

Getting a sense of when recessions are about to happen is a near impossible task, as evidenced by official institutions that often fail to forecast recessions, and organisations like the NBER (National Bureau of Economic Research) that specialises in dating US business cycles, dating …

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Posted under US
why-doesnt-ecb-buy-oil

Why doesn’t the ECB just buy oil?

It’s pretty clear that the pressure is on the European Central Bank (ECB) to come up with some form of policy response at their next Governing Council meeting in March. Take, for example, the 5-year, 5-year EUR inflation swap rate (i.e., the swap market’s estimate of where 5-year inflation rates might be in five years’ time), which has taken a nose dive to 1.5% (see chart below). This is remark…

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The new wedge in US inflation linked bonds

The new wedge in US inflation linked bonds

There has long been a well-known ‘wedge’ in the UK index linked bond market, since the bonds pay RPI and the Bank of England targets CPI. The wedge is the difference between these two price indices, and over the long term is thought to be approximately 1%. So over the long term, and with all sorts of caveats, RPI will be around 1% higher than CPI. The reasons for the wedge are essentially that …

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Blog_WB_2015 IG-Spread-Performance1

Investment grade credit spreads spinning wider

We recently blogged about the uninspiring performance of many fixed income asset classes in 2015. Investment grade (IG) corporate bonds certainly had a tough year as credit spreads trended wider, both in the USD and the EUR market. Taking a look at option-adjusted spread (OAS) levels, USD IG credit (+29 bps) marginally outperformed against EUR IG credit (+36 bps) in 2015. In both cases periods …

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16.01.18-RW-blog

The US economy is not heading for recession, as it’s not FIRING on all cylinders!

There is currently a lot of concern regarding the US economy and its ability to withstand the collapsing price of oil and mined commodities, the Chinese slowdown, and the recent quarter (yes, quarter) point rate rise – or given the current market mood, its ability to cope with a doubling of the Fed funds rate! Whilst high yield spreads are close to recessionary levels, this is skewed by the ene…

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16.01.14-ME-blog

A look at the Swiss economy a year after the currency peg break

A year ago today the Swiss National Bank (SNB) unexpectedly discontinued its CHF peg against the euro, causing huge moves in the FX markets. On the anniversary of the peg removal I thought it would be interesting to see how the Swiss economy has developed over the past twelve months.

Swiss economy robust, but not immune during 2015

The Swiss economy actually proved to be quite resilient in 2015…

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Inflation expectations at lowest level in last three years – M&G YouGov Inflation Expectations Survey Q4 2015

We recently blogged about the marked effect the collapse in commodity prices, particularly oil and energy, have had on global inflation rates across the world. Headline inflation rates in major western economies have been in, or have flirted with, deflation throughout the year in spite of ongoing economic growth and a steady recovery in labour markets.

An interesting issue is whether this, seem…

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The El Niño effect

Need motivation for your New Year diet? M&G’s cake index shows that cake is getting more expensive

I blogged in 2014 with good news for cake lovers; falling soft commodity prices indicated that the cost of baking cakes was getting cheaper.  Unfortunately (and in contrast to hard commodity prices, notably oil recently hitting new post global financial crisis lows), the final quarter of 2015 depicted a reversal in trend with soft commodity prices on the rise.

In September we discussed the pote…

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Oil is everywhere. But what matters most are the idiosyncratic stories. Within this context, it is fair to say that an emerging market bond portfolio is unlikely to be fully immune to oil. Looking into 2016, this is good news if you are bullish oil: any significant oil price increase will in most cases drive a rally in emerging market assets. If you are bearish oil, you may still find interesting investment opportunities: the Oil & Gas sector in emerging markets generated a negative return of -3.0% in 2015 but the dispersion of corporate bond returns was huge and not necessarily correlated to oil prices. For instance, the fall in Petrobras bonds was more driven by the ongoing corruption scandal in Brazil and the group’s debt levels than the actual decline in oil prices. On the other hand, despite their country exposure, PDVSA (Venezuelan state-owned oil company) or LUKOIL (Russia-based oil producer) bonds had double-digit total returns in 2015. In what might be a good lesson for 2016, it shows that in emerging markets, in many cases, macro and credit idiosyncratic stories matter more than oil.

Oil price slump is a drag on emerging markets. But wait, why?

Oil price moves and their impacts on emerging markets will continue to be a hot topic in 2016. It is true that economies which rely heavily on oil exports and fiscal revenues, such as Saudi Arabia, Russia or Venezuela, have been facing an extremely challenging macro environment with the decline in oil prices. But, overall, there are more net oil importers than exporters amongst the developing e…

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