Displaying items by tag: rates

(New York)

It was a golden period, but it seems it only lasted less than a year. 2017 was a great year for the global economy. For the first time since the Crisis, the whole world seemed to be growing in unison. Even Europe, long in the doldrums after its sovereign debt crisis, had blossomed. But just as that growth was finally harmonizing, it is changing again. US growth still looks solid, but the rest of the world, especially Europe, is beginning to stagnate. China, too, leaks weaker, and both the ECB and Chinese central bank have held off on any rate rises.

FINSUM: We wonder if a global recession is coming. The US still looks strong, but then again we are coming off a very strong late stage tax cut.

(Washington)

In a widely expected move yesterday, Jerome Powell announced the first hike of his stint as the head of the Fed. The move was a quarter point higher to between 1.75% and 2%. Powell promised to be more open and transparent about the Fed’s outlook than in former times. Powell presented the rosiest outlook on the US economy in memory, repeatedly expressing strong optimism. He indicated that there were two more hikes planned for this year.

FINSUM: All the optimism comes across as quite hawkish despite Powell’s intentions to seem gradual. We appear to be on definite course higher.

(New York)

Whether you like it or not, the next recession is on its way. The big question is how long until it arrives. Most estimates range from 6-24 months, but most agree we are coming to the close of a very productive economic and market cycle. So what is the best way to prepare your and client’s portfolios for a downturn? The answer may be unconstrained bond funds, such as the Loomis Sayles Bond fund. Unconstrained bond funds, which can invest in any type of fixed income instrument in any geography, have done quite well this year compared to other areas of fixed income. Some funds are focusing much more on shorter term corporate credit, rather than rates, to greatly lower their interest rate risk.

FINSUM: Unconstrained bond funds seem like a good way to get some solid yields while also protecting against big losses. We think short-term Treasuries and investment grade are good choices, but are wary of longer-term sovereign bonds and junk bonds right now.

(New York)

In what might be a sign of a rough patch to come for the global economy and markets, 16 of the largest global banks have collectively just entered a bear market, falling 20% from their peak. Those 16 come from among the 39 global “sifis”, or systemically important financial institutions. One research analyst says “If these banks are supposed to be systemically important then policymakers ought to be watching them to see what is happening”.

FINSUM: The odd part about these falls is that rising interest generally help banks, as they have wider net interest margins. So why the downturn?

(Washington)

All eyes on the Fed. Not only is the winding down of the Fed’s balance sheet a potentially major issue to Dollar liquidity and emerging markets, but the market has rate worries to deal with. The big question is how low the US jobless rate can go before it sparks big inflation. Currently sitting at 3.8%, the Fed needs to decide how long it can tolerate the hot market before hiking rates quickly. The US jobless rate has only twice been so low. Once in the 1960s, which led to a decade of high inflation, and once in 2000, which was followed by a recession.

FINSUM: There is currently a big disconnect between the rate rises the market is pricing in versus what the Fed is forecasting. The market may lose that gamble very badly.