12.10.2016

A low point in the rates?

by Oddo BHF Asset Management

In September, the main focus was once again the central banks, the ECB first of all, then the Bank of Japan and the Fed. Expectations were high in all three cases. To announce additional monetary easing in the first two, and guidance on anticipations and credibility in the third. The first two disappointed the market, announcing measures that fell well short of investor anticipations. Already in July, the BoJ opted to keep things as they stood even though a large proportion of investors expected to see further monetary easing. The Fed, for its part, struggled to overcome internal divisions and look beyond a month-by-month horizon, at the risk of making mistakes in its growth projections and damaging its credibility.

Recap of a few key points.

  • Everywhere in the developed world, except for Japan, total inflation data show signs of an acceleration, with a rather surprising increase in the recent period.
  • Oil prices seem to have stabilised following the agreement between OPEC countries to reduce their production, but this will naturally have to be confirmed at the annual year-end meeting. In other words, the upward base effects on inflation should come fully into play in the months ahead.
  • The global growth cycle seems well underway, even if the current rebound is not as high as anticipated. Of course, risks persist, as stressed again by the IMF. But it looks like we can expect global growth to continue, on average at its potential rate, a little higher in certain countries and a little lower in others. However, economies are still dealing with negative supply factors linked to productivity and company savings trends.
  • In terms of financial stability, many are of the view that destabilising factors could more than offset the beneficial effects of a continued acceleration of asset purchasing, notably in the banking sector where business models have already suffered.

In conclusion, all of this suggests that while they should not cease all support, the central banks would do well to ease up on monetary easing. Particularly given that in the event of a relapse, politicians will be quick to point the finger at issuers – whereas responsibility for the continuation of the recovery at this stage lies in the political sphere (structural reforms and budgetary stimulus).

Hopefully, the low point in sovereign bond yields is now behind us: this would bring an end to the deflationary risks that have haunted us since the 2008 crisis.

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Nicolas Chaput
Global CEO & Co-CIO,Oddo Meriten AM 

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Laurent Denize
Global Co-CIO, Oddo Meriten AM

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