Does the FOMC hope that with only moderate policy tightening, it can eventually succeed in returning US inflation to objective after an overshoot?
The financial sector had been assumed to be one of the equity sectors that would outperform the broad S&P 500 index in 2018. Robust US economic growth following the passage of tax cuts would boost cyclical sectors and deregulation would enhance profits. But instead of market-beating returns, the sector’s total return up to 27 June was -4.3%, compared to a 3.0% gain for the rest of the index. What are the reasons for the disappointing figures? Might things turn around by the end of the year?
Hopes were so high. At the start of the year, the ‘Goldilocks’ environment — characterised by above-trend global growth, contained inflation, and moderate volatility — looked set to continue, if not quite as strongly, in 2018.
Taking a closer look at how the tariff cards may play out and which markets may suffer the most should things get nasty
What are the implications of recent political events in Italy, deepening trade tensions and the June FOMC meeting?
Cooling growth, inflation becoming ‘too hot’ - what is the outlook for Goldilocks?
"If you can't re-use it, refuse it"
With developed market inflation looking set to rise in the coming months, investors would do well to understand the implications for their portfolios and to consider how best both to hedge against inflation and achieve greater diversification
Valuing the stock of renewable and non-renewable resources – our natural capital – adds another perspective to investment decisions, for example, in terms of the potential risks that ecosystem impairments present to the outlook for industries ranging from agriculture to tourism. Mapping natural capital dependencies matters to investors, argues Robert Poujade.
While oil has been the star performer among commodities so far this year, the balance of risks is shifting towards a re-alignment with other growth-sensitive assets. Indeed, the risk/reward profile for crude oil prices appears skewed to the downside.
The most recent run up in US Treasury yields (the 10-year benchmark bond yield peaked at 3.03% on 25 April 2018, though it had fallen back to 2.94% by 4 May), and the lacklustre performance of US equities, have renewed worries about the outlook for the stock market in face of higher financing costs. Many investors are worried that with price-to-earnings and price-to-sales multiples still at elevated levels, they could see multiple compression even if earnings growth remains good (the price-to-next-twelve month earnings ratio on S&P 500 is around 16.8x and price-to-sales around 2.1x, both well above long-run averages).
The decision by the Trump administration to impose tariffs on US imports of steel and aluminium has unsettled politicians, commentators, investors and financial markets as it could be the opening salvo in what turns out to be full-blown trade war.
One of the metrics most often cited for measuring equity market valuations is the Shiller P/E, also known as the Cyclically-Adjusted Price/Earnings ratio (CAPE), defined as the price-earnings ratio based on average inflation-adjusted earnings from the previous 10 years.
Read about our asset class views and our economic and policy analysis
It was of course inevitable (in retrospect) that the strong performance of the technology sector over the last year would suffer a reversal; it was just a question of when and what the trigger would be. In the end, there were two guns: tariff threats from the Trump administration, and rising concerns about taxes and regulation following the Cambridge Analytica revelations about the misuse of Facebook user data.
In considering what drives breakeven inflation (BEI) rates, mostly the gap between the yield on 10-year US Treasury inflation-protected securities (TIPS) and that on regular 10-year Treasury notes which acts as a measure of expected inflation, our approach involves the analysis of their components, namely (i) expected inflation (ii) inflation risk premiums (iii) liquidity premiums.
In March, Britain and the EU reached a milestone agreement in their Brexit negotiations, but the road to a sensible outcome remains complex and long, with ample opportunity for spats and setbacks along the way.
Join our strategy and economics experts at the 25 April webcast
Trade war scenarios: tackling volatility and risk-off situations
When the owner of a small Peruvian farm moved to sue a giant of the energy industry, no-one noticed, but, as the case progresses, it could have a major impact on legislation and how future lawsuits brought on the grounds of global warming are handled. It could also spur the investment needed to accelerate the technological advances to deal efficiently with the menace of climate change.
A new era for US central banking began on 20-21 March as Federal Reserve chairman Jay Powell presided over his first policymaking meeting.
Tariffs against China – likely products and economic impact on the US / The broader context – “America First” agenda raises risks of further trade tensions / Prospects for retaliation from China / Economic impact on China and other countries in the supply chain / Long-term risks stemming from on-shoring
World Water Day on 22 March 2018 provides yet another timely reminder that water is humanity’s most precious resource – and that we must strive ceaselessly to ensure access to it for as many people as possible.
The ECB’s very gradual edging toward an unwinding of its bond-buying programme continues at a slow pace. Here’s a short review of news on ECB policy so far this month:
Our outlook for US inflation and growth has brightened considerably since the start of 2018, so we have lifted our targets for both US Treasury yields and TIPS-based breakeven inflation rates. Here, we review the factors we see as contributing to the rise in US inflation and we look at the potential monetary policy response from the Federal Reserve (Fed).
As someone who began his career analysing data for the UK government back in the last century, I never expected there’d be a period in my working life when data or big data would be considered fashionable, or in the modern vernacular, ‘the new Black’. But if you are not into big data or using it in any shape or form in modern business, you run the risk of being considered as stuck in the dark ages.
The first few months of 2018 have brought confirmation of continued synchronised above-trend global economic growth, lifting the long shadow cast by the Great Financial Crisis (GFC) of 2008/09, dissipating the deflationary risks that have weighed on developed economies in recent years and putting central banks on the path towards interest-rate normalisation.
Join Steven Friedman and Cedric Scholtes for the 15 March webcast
The US dollar is currently down by nearly 10% on a nominal, trade-weighted basis since the end of 2016, which has contributed to rising US company earnings. Earnings-per-share (EPS) estimates have also been boosted more recently by the anticipated benefits of US tax cuts.
The minutes of the January Federal Open Markets Committee (FOMC) meeting reveal policymakers at the Federal Reserve becoming increasingly confident in the outlook for inflation in the US.
As for the outlook: how much inflation is too much?
The spark for the fire: why had investors been ‘shorting’ volatility? – taking a timely look at the mechanics of the recent volatility surge and drawing some balanced conclusions about the possible implications for asset prices. Five topics for Chairman Powell – considering questions that senate members might consider asking the chairman.