US Economic Outlook: Improving GDP Growth 

177491798Recent US economic data indicate that the US may deliver growth of over 2% as well as modestly higher inflation for the second half of the year, for overall 2.0% GDP growth over the next 12 months.

Solid employment should continue to support consumption and the housing market; inventory restocking and government spending should also contribute to growth. Importantly, while employment gains have decelerated as the economy nears full employment, monthly payrolls gains need not match the 230,000 average of the past few years to achieve further declines in the unemployment rate. As long as non-farm payroll employment grows by at least 100,000 per month, the unemployment rate should continue to decline.

Continue reading

Posted in Economy, Equity, Fixed Income, Industry Insights, Markets | Tagged , , | Leave a comment

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

Investing in BrexitDid Brexit Really Happen – Part Deux?

Last week we posed the question as to whether Brexit had really happened, given the performance of the UK stock markets and bond markets. The “Brexit – what Brexit?” cheerleaders were in full cry at the start of last week with the publication of the Euro-area Purchasing Managers Index (PMI) for August. Despite concerns that the UK vote would have a knock-on effect on European economic activity and sentiment, the Euro-area Composite PMI (a combination of the Services and Manufacturing PMI’s) showed little change in activity. The level for August printed at 53.3, slightly higher than the July level of 53.2 and ahead of consensus forecasts of 53.1. The Services component increased by 0.2 to 53.1, whilst the Manufacturing component showed a minor fall from 52.0 to 51.8. It appears that the improvement in the Services component was driven by better performance from France and peripheral Europe, whilst the decline in the Manufacturing component was affected by a more broad-based easing of momentum, but led by Germany. Admittedly, drilling down deeper into the sub-components could suggest that the outlook in coming months might be tilted towards the downside (services business expectations fell 0.7 points). But right now, the signal from the Euro-area PMI’s suggests that growth is holding steady in Q3 and that quarterly growth in the region could match the first quarter’s level of 0.4% quarter-on-quarter, or about 1.6% annualised. That would certainly please the ECB ahead of their meeting on September 8th, where the ECB could be under pressure to clarify the expected end date of their bond-buying programme, currently due to expire in March 2017. But that wasn’t the end of the story – there was a bit of a sting in the tail.

Continue reading

Posted in Fixed Income, Industry Insights, Markets | Leave a comment

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

Architect Looking out of WindowCentral Bankers Start Talking Again: 

Whilst August is traditionally a quiet month in markets with many participants on vacation, central bankers have been quite active in trying to guide markets to their way of thinking. In the U.S., San Francisco Federal Reserve President John Williams started his August 15th Economic Letter by stating that “the time has come to critically reassess prevailing policy frameworks and consider adjustments to handle new challenges, specifically those related to a low natural rate of interest”. That’s central banker code for saying “governments need to do more on the fiscal side and we need a new way to think about monetary policy”. Shortly afterwards the minutes of the July U.S. Fed meeting were published, showing a divided committee. Some members thought that the economy was sufficiently strong to weather a rate increase, others felt that they would prefer to wait for inflation to move higher before moving. Across in Europe, the minutes of the ECB’s July meeting showed that the fall-out from the Brexit vote in the UK “has thus far been less marked than many had anticipated”. Once again, the ECB noted that they stood ready to take whatever actions were necessary to reach their 2% inflation target, but repeated their mantra that Eurozone governments needed to help as well, preferably by enacting structural reforms. In the UK, speculation is mounting that the new Prime Minister Teresa May could announce a fiscal stimulus package that, along with the Bank of England’s (BoE) recent monetary stimulus measures, might help the UK economy weather the fall-out from the Brexit vote. Finally, in Japan, Prime Minister Shinzo Abe launched a new 4.6trn Japanese Yen (U.S. $45bn) stimulus package to boost a struggling Japanese economy. All this suggests that global governments are moving closer to acknowledging that central banks and Quantitative Easing (QE) programmes alone cannot solve the world’s problems. With long-term interest rates at historically low levels, it makes sense, in our opinion, to loosen the purse strings and boost fiscal spending, financed by issuing long-dated bonds (as Japan is considering doing). In the medium-term, this could lead to higher bond yields and steeper yield curves.

Continue reading

Posted in Economy, Fixed Income, Industry Insights, Markets | Leave a comment

China: How Serious is the Debt Issue?

chinaEmerging Markets (EMs) continue to drive global growth, with China still accounting for the lion’s share. However, China’s increasing debt remains a significant concern for global investors. Here, our featured contributor, Pioneer Investments’ Economist Qinwei Wang, takes a closer look at China’s debt situation.

Continue reading

Posted in Emerging Markets, Industry Insights, Markets, Uncategorized | Leave a comment

European Equities: Life After Brexit

520038463One month on and European Equity investors could be forgiven for thinking the UK Referendum never happened; the market has displayed an impressive amount of equanimity regaining nearly all lost performance. Looking forward, should investors expect ongoing market composure or is a period of consolidation due?

Continue reading

Posted in Equity, Industry Insights, Markets | Leave a comment