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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U.S. Economic Outlook is Sound

We believe U.S. economic data supports sound conditions for the economy in 2014, with no major imbalances appearing. Some figures, weaker than expected in the first weeks of the year, are mainly the result of exceptional weather conditions. The transition towards a self-sustained recovery is supported by strengthening internal demand, driven by recovering capital expenditure and household consumption. We expect to see mixed signals coming from economic activity indicators and labor market as the economy normalizes, but we do not expect the trend in the main drivers of growth to be derailed.

Our growth estimates for 2014:

  • U.S. GDP growth of 2.8%.
  • Personal consumption estimated to grow at a moderate pace and then accelerate in the second half of the year.
  • Inflation expected to remain below 2% but step up gradually during the year.
  • Non-Residential Investments to accelerate in the second half of the year, giving momentum to acceleration in capital expenditures.
  • The Fed will continue to taper its bond buying program which will be effectively wound down by the end of 2014 if its current economic projections hold.

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What Type of Approach Might Best Pursue Investor Needs and Challenges?

In the last five years, we have seen an increasing appetite for risky assets. Initially, this was a consequence of the search for yield and enhanced returns in a low interest rate environment. More recently, it has translated into a deeper exploration of yield opportunities on the riskier side of risky assets (such as high-yield bonds and small-cap stocks). Now, with equity markets close to all-time highs and credit spreads at historical lows, we must ask ourselves two questions: Continue reading

Is More ECB Action Likely if Inflation Worsens?

During the press conference that followed the European Central Bank (ECB) meeting held in Frankfurt on February 6, 2014, ECB President Mario Draghi commented on the current low level of inflation in the Eurozone. These are some of the highlights from his discussion: Continue reading

Walking a Tightrope: The Credibility of Central Banks and the Risk of Crisis

As we begin 2014, economies in developed countries are gathering momentum and central banks are retaining accommodative monetary policies, which extend support for risky assets. U.S. corporate capital (CAPEX) expenditure is being revived, marking an improvement necessary for upgrading the overall economic growth. In this respect, recent disappointing figures on the job market seem more of a transient occurrence than a trend reversal. Nevertheless, key macro figures are still under close watch amid concerns that the economy is actually getting stronger and can withstand the gradual withdrawal of the exceptional monetary stimulus. Continue reading

What Has Abenomics Achieved?

Pioneer Investments’ Head of Global Asset Allocation Research, Monica Defend, assesses the progress of Abenomics – the series of economic reforms implemented by the government of Prime Minister Shinzo Abe – and discusses her outlook for the Japanese market.

What has the new policy course known as Abenomics achieved and what is yet to be done?
Japan managed to exit a long stagnation, also marked by deflation, thanks to aggressive monetary expansion. That was probably the easy part of Abenomics, as it got a major implicit endorsement from the U.S. Federal Reserve; Japan’s quantitative easing accounted for an even larger part of GDP than the U.S. version, but had the Fed not led the way with quantitative easing, we have legitimate doubts that it would have been as effective.

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China’s Economic Reform Plan

In a recent conversation, my colleague Mauro Ratto, Head of Emerging Markets, helped boil down China’s recent economic reform plan.

China’s “Breakthrough” in the Making

The ruling communist party’s gathering (also known as Plenum) in early November was followed closely by the expected announcement of a major plan of economic reforms.  Three major reforms that were highlighted during the plenum concerned:

Where Have All the Savings Gone?

The last six years have witnessed the most severe financial crisis since the end of World War II, with household earning capacity and saving ability experiencing significant changes due to the downturn in the real economies. This challenging economic situation definitely affected household saving behavior, although the impact has been different in various countries – for some, the impact on household earning capacity was more intense than others. Continue reading

What is the Current Market Reality?

The Current Market Reality:  Economic Transitions, Equities & Alternatives

At this year’s Global Investment Forum, the discussion among Pioneer investment professionals was generally positive. Of course, everyone was conscious of the current market reality:  that the major force behind recent positive, though benign, market trends is the unprecedented creation of liquidity and extremely loose stance of monetary policies around the world. Monetary policy alone cannot be the only conduit to a new economic model of income growth and job creation. Continue reading

The Death of Fixed Income? Not so Fast . . .

Recent market movements have reminded investors that the fixed income market is facing a secular change, after a 30-year-long bull market driven by a continuous decline in interest rates. I believe the announcements of the death of fixed income as an asset class are greatly exaggerated, and in order to face the new reality, fixed income investors and asset allocators need to adopt a significant change of approach. Continue reading

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