“Whatever it Takes” Two Years Later: What’s New?

Today is the second anniversary of Mario Draghi’s “Whatever it takes” pronouncement during the darkest days for the euro. Let me share with you some thoughts on how that event probably changed the course of the Eurozone.

Draghi’s speech did what it was supposed to do – it preserved the euro and it calmed the economy and the financial markets – without costing a single euro. The most important measure of success is that after the speech, the Outright Monetary Transaction Program (OMT), which allowed the European Central Bank (ECB) to buy short-term bonds from euro governments, was not utilized even once. The bottom line: The speech and the program were nothing more than a communications initiative, albeit an extremely adept one.

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U.S. Forecast Update: Growth, Inflation and Central Bank Policy

Pioneer’s Head of Global Asset Allocation Research, Monica Defend, along with U.S. and Latin America Global Asset Allocation Research Economist, Annalisa Usardi, recently released an update on the U.S. economy. The update was based on the Bureau of Economic Analysis’ (BEA) release of the third and final estimates 1Q14 gross domestic product (GDP), which came in lower than expected. The forecast update focuses on three areas: growth, inflation and central bank policy. Below are some highlights from their report. To read the full report, click here. Continue reading

Bubbles Detector

Summer is time for vacation, and getting ready for a trip has become almost a ritual for me: pack bags for my large family, load the car, don’t forget the GPS and check weather conditions. The last two points, I believe, apply not only to planning a safe and comfortable personal trip, but also to navigating the financial markets.

The financial “weather” seems nice: volatility is extremely low across almost all asset classes, as a consequence of the extra-loose monetary policy. However, as with the weather, we are aware that financial conditions can rapidly change. History suggests that periods of exceptionally low volatility should be treated with skepticism, as they have usually preceded vicious market turmoil. Continue reading

EM Update: Central Banks & Monetary Policies

Pioneer’s Head of Global Asset Allocation Research, Monica Defend, recently released an in-depth macro report on Emerging Markets. Here are some of her updates on EM monetary policies. You will find a link to the full report at the end.


ASIA

  • China – The implementation of fiscal reform is proceeding as ten local governments will be allowed to issue bonds with full responsibility of repayment. Even though the economic slowdown would suggest a stronger monetary easing, in the ongoing process of liberating interest rates and increasing efficiency in credit allocation, monetary policy must remain prudent to prevent a return to the old model of allocation and growth. The latest reserve requirement ratio cut for some qualified banks supports this attitude of the People’s Bank of China.

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Seeking New Opportunities in Emerging Markets Debt

Yerlan Syzdykov, Head of Emerging Markets Bond & High Yield here at Pioneer Investments, recently shared his thoughts with London’s press on the challenges of investing in emerging market debt. I thought I would share them here with you as well. The following is a summary of his remarks:

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Is the Economic Cycle Dead?

We are fully aware that it is not easy to make short-term macroeconomic forecasts, especially after a financial crisis with the potential to bring long-term headwinds to the economy. The Great Financial Crisis left many legacies. There was the deleveraging phase (as investors paid off debt) that typically follows credit/real estate bubbles. And, there were many dislocations in the job market and in the investment cycle, as well as distortions created by an excess of regulation. Continue reading

The ECB’s Preventive Measures – Will They Be Enough?

At their monthly meeting today, the European Central Bank (ECB) announced a number of measures, aimed at preventing a “negative spiral…between low inflation, falling inflation expectations and credit, in particular in stressed countries”.*

Our initial impression is that these measures were anticipated by the market and therefore should not lead to major shifts in sentiment. The news is good for peripheral economies and assets, but the bar to outright quantitative easing (purchases of government bonds) has probably risen. The cut in the refinancing rate was also well-anticipated by the market, despite some marginal disappointment that the rate cut wasn’t 15bps. Apart from benefitting mortgage holders in certain countries whose loans are linked to the ECB rate, this move is largely symbolic, and in our view is unlikely to have a significant impact on economic activity or inflation rates. The deposit rate cut was also anticipated by markets.

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Russia Update: Despite Conflict, Opportunities Remain

Despite an uptick in volatility and spreads, Russia remains an important market for investors. For fixed income, the recent widening of spreads that followed the country’s intervention in Ukraine may represent an opportunity. For equity investors, these events highlight an increasingly complex outlook that may or may not offer opportunity at current levels. Continue reading

Time to Reassess the Emerging Markets Landscape?

The last decade may well be remembered as the golden era for Emerging Markets (EM). These economies emerged from the crisis of the 90s and experienced a success story of restructuring and strong growth early in the millennium. Cheap labor markets and massive capital inflows, along with extraordinarily loose monetary policies put in place globally to fight recession, were behind the EM renaissance. Continue reading

A Eurozone Pick-Up? Three Key Insights

The Eurozone economy is showing more convincing signs of a pick-up that is more broad based and robust than anticipated. Obviously, a wide difference in conditions exists between European countries and fragmentation in their financial conditions still exist, but these are (slowly) receding. We recently examined trends in three elements of Eurozone health: growth, inflation and the European Central Bank.

Growth: Improving Momentum
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