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12 September 2017

Interesting times for central bankers.

If growth is picking up, why are bond yields still so low?

It appears the low volatility/high valuation regime in equity and credit markets is continuing into the autumn. This is despite an important and imminent US Fed balance sheet reduction announcement. Furthermore, October brings details of the ECB’s plans to reduce the net purchases of its own QE program. While central bankers are quick to claim credit for any improvement in economic conditions, the decline in long-term bond yields over the summer questions the durability of the expansion as the yield curve flattens. It also remains to be seen if investors will re-appraise the low level of risk premia in global markets as QE is withdrawn.

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31 May 2016

Beware of buy and hold.

The last few decades of the 20th century represented a golden era for equity investment with an average compound annual return, including dividends, of 14% pa in the period 1973-2000 for the US, UK and Europe. In this century to date, the annualised rate of return has fallen to 5%.

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17 March 2016

Was there a “plaza” accord after all?.

Yesterday’s FOMC statement and Yellen’s press comments were unequivocally more dovish than the markets and we were expecting. Going into the meeting there was a reasonable case for preparing the markets for a rate increase in early summer, given declining unemployment and increasing US core CPI. As it turned out, external factors – perhaps a euphemism for undesirable moves in global markets and the US dollar – were in contrast almost overplayed. For us, “Peak fear” was last month’s story, so why bring it up now?

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10 March 2016

ECB - Using the bazooka.

With survey data pointing to a marked slowdown in the eurozone manufacturing sector, Exhibit 1; forward inflation expectations at 1.4% significantly lower than at December’s meeting; and a cut in the ECB’s projections for economic growth from 1.7% to 1.4% for 2016, anything other than a forceful response would have been received very poorly by markets. This would in our view also have been tantamount to a policy error. But unlike December, this time markets got what they wished for – an increase in the size and composition of eurozone QE.

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RSS - Strategic Insight
Sector report cover
*Multiple Sectors
31/01/2019
Equity strategy and market outlook

In this month’s strategy piece, Alastair George believes that investors should avoid the temptation to sit back and spectate in Q119 as a prudent degree of risk-taking may be a better strategy. Valuations now offer a more attractive entry point for both developed and emerging equities while US monetary policy has largely normalised and US interest rate increases are now on pause. For US/China trade, a truce in 2019 could clear the way for Trump’s re-election in 2020 while in the UK, the chances of a delay or revocation of Article 50 are rising faster than that of a chaotic no-deal Brexit. Sharply declining survey data and continuing profits downgrades (even if profits growth still remains positive) are, however, two key counter points to the bullish argument. Nevertheless, a major slowdown in 2019 remains less probable than a soft landing at this point and global equity allocations should be at least at neutral rather than cautious, in his view. The strategy report was originally published on 17 January and has been updated to reflect recent market developments.

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