There has been a barrage of G7 central bank coverage in March, culminating in much talk, but resulting in – on the whole – little new action. The Bank of Japan remained on hold (after adopting a surprise negative rate policy at the end of January), the Federal Open Market Committee (FOMC) delivered a “dovish hold” (keeping interest rates unchanged while lowering their longer term rate guidance)…Read the article
The US election campaign has surprised everyone thus far. Candidate Donald Trump has vowed to deport all of the 11 million illegal immigrants currently living in the US. He has also declared that he would impound all remittance payments derived from illegal wages. We have written before how Central America and the Caribbean would benefit from improving US growth and have been invested in variou…Read the article
The simple answer is a no. Eric Lonergan in a guest blog has already (see here) debunked the idea that central banks are at the zero bound. And since then the market has become increasingly confident that the ECB will cut its deposit rate further into negative territory at tomorrow’s meeting. And it has reason to do so. Inflation and growth will be lower than the Bank had forecast a mere three …Read the article
Ahead of tomorrow’s ECB monetary policy meeting, the market has high expectations of rates being cut further into negative territory (consensus is a cut in the deposit rate by 10 to 20 bps). However, a report this week from the Bank for International Settlements (BIS) suggests that cutting rates further could be counterproductive and damaging for the banking sector.
The BIS’s quarterly review,…Read the article
2015 saw global inflation risk premia collapse, led by the developed world. US, UK and European annual inflation rates spent most of the year at or around zero with numerous dips into negative territory. Short dated breakevens correspondingly fell to levels that we last saw during the financial crisis (well, to be fair, they went far lower back then, but we are still at crisis levels today), an…Read the article
It’s been a difficult past few months for all risk assets, including the high yield markets. Weakest of all has been the US, with negative returns of almost 10% over the past year. As part of this re-pricing, spreads have widened significantly, with the US high yield market touching almost 900bps over treasuries. All-in yields also briefly peaked above 10% last month.
Underlying this has been …Read the article
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…Read the article
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 …Read the article
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…Read the article
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 …Read the article