Tapering – Oh Yes You Did, Oh No We Didn’t

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5 Key Take-Aways from Today’s ECB Meeting

1. No Change in the ECB’s Deposit Rate

As expected, the ECB (European Central Bank) left the deposit rate unchanged at -0.40%, whilst keeping the refinancing rate also unchanged at 0%. Pretty much everyone in the markets had expected that both rates would be left unchanged, so no real surprise here.

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What Will 2017 Bring for Fixed Income?

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Trump’s Programs Should be Fairly Stimulative

Despite the ongoing controversy over the President-elect, I believe that when you get through some of the rhetoric and look at the programs as proposed, it is going to be pretty stimulative if they get enacted in large measure. For example, there is a program of large tax cuts–both for corporate and personal income. Loosening the regulatory noose is also on the agenda. I believe those two things combined will be fairly stimulative. Alternatively, depending on how far Mr. Trump goes on the trade protectionism, some of those positives could be offset. I believe the program overall will be quite stimulative to the US economy, which has already begun to pick up a little growth towards the latter part of 2016. Continue reading

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Global Equities: Drivers and Risks for 2017

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Marco Pirondini is Head of Equities, US at Pioneer Investments.

A Constructive Outlook for 2017

We are constructive on the outlook for the global economy going into 2017, given the renewed attention on fiscal policies that will work alongside continued supportive monetary policies. We have seen this in Japan, now in the US and probably in the UK. We think that all of this should support global growth and more importantly, earnings. Further support is coming from rebounding commodity prices, and we think that the market next year may appreciate at least in line with earnings growth. Continue reading

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Italian Referendum: It’s a NO

Italy 477814037 voted “no” in yesterday’s Referendum, rejecting Prime Minister Renzi’s proposed changes connected to the electoral reform.

This outcome will bring, in our view, a phase of relative uncertainty, with Renzi’s resignation announced last night and the possible formation of a technical government to renegotiate the electoral law and re-boost reform momentum. Italy will enter this critical period with an electoral law applicable only to the Deputies Chamber and still under scrutiny by the Constitutional Court.

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3 Things the European Investment Grade Fixed Income Team Talked About Last Week

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1. UK – All I Want for Christmas are More Gilts 

Last week the UK Chancellor (or Minister for Finance) unveiled what is known as the Autumn Statement – a kind of update on the UK government’s tax and spending plans. As expected it was a fairly unexciting affair, but with a couple of interesting points. The Office for Budget Responsibility (OBR) outlined a more positive outlook for UK growth relative to the Bank of England and many market forecasters, even if it did reduce growth forecasts significantly. GDP is forecast to be 1.4% in 2017 and 1.7% in 2018, before increasing to 2.1% for 2019 and 2020. Overall, over the next five years, the OBR forecasts growth to be cumulatively 1.4% lower than previously, mainly due to Brexit-related uncertainties. But rumours about the death of austerity in the UK were greatly exaggerated, to quote one commentator. Given all the talk about a global rotation from monetary stimulus to fiscal stimulus, UK Chancellor Philip Hammond tried to keep all his options open. Ex-Chancellor George Osborne had already abandoned plans to deliver a budget surplus by 2020, and Hammond pledged to target a structural deficit below 2% of GDP by March 2021. That gives Hammond some leeway to increase borrowing in the event of a hit to economic activity, which in our opinion is quite likely. The fiscal easing or stimulus that was developed amounts to approx. GBP£6bn per year or about 0.3% of GDP, and is heavily tilted towards infrastructure. Overall, the net effect is that cumulative borrowing over the next five years in the UK is expected to be an extra GBP£122bn, most of which is attributable to weaker growth and consequent lower tax revenues. For fiscal year 2016-2017, the net financing requirement has increased by GBP£20bn since previous numbers published last March. This will be funded by an increase of GBP£5bn in T-Bills and a GBP£15bn increase in gilt issuance. This was more than the market had expected, as is the anticipated duration profile of the extra issuance, with more long-dated Gilts being issued than expected – the market had factored in an extra GBP£4.4bn of extra gilt issuance. The consequence was some upward pressure on UK bond yields. We continue to believe that an underweight position in UK Gilts is warranted. One last point – of the extra GBP£122bn that needs to be borrowed over the next 5 years, GBP£59bn is attributable to Brexit. We’ll just leave that there.

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