Struggling for some time now to hit its inflation mark sustainably, the Federal Open Market Committee may move to adopt average inflation targeting, or even temporary price level targeting, in its upcoming strategy review. Such a shift should steepen the Treasury curve, lower real interest rates, and support a widening of long-forward TIPS breakevens.
What predictive information does the yield curve usefully yield? An assessment suggests it is a flawed mirror: investors seeking to understand where the economy is heading may be better off concentrating on the fundamentals.
An explanation on why China wants a trade deal and how the US feels about this - webcast 28 Feb
In the US, core CPI and PCE inflation should gently firm in 2019, with the contribution from shelter being supplemented by a growing contribution from cyclically-driven services inflation.
Problems are not stop signs, they are guidelines. Robert H. Schuller Let us consider the four GDP components – consumption (C), investment (I), government expenditure (G) and net exports (NX). The outlook for NX is clouded by the Sino-US trade conflict.
With the structural direction of equities unclear, we prefer to be neutral in the medium to long term. We are structurally underweight in fixed income as we foresee gradually rising inflation and further monetary policy normalisation.
Tighter financial conditions, persistent political risk and slowing earnings growth are among the many factors set to inform fixed income choices, with careful security picking likely to matter more to performance than it did in 2018.
Fixed income quarterly outlook Q1 2019
On credit, emerging markets and the US dollar
A look at developed and emerging equity valuations to assess which now appear attractive, at least from a stock multiples viewpoint