Guide to the Markets - J.P. Morgan Asset Management
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Guide to the Markets

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Key takeaways:

As we enter the fourth quarter of 2017, the European Central Bank’s (ECB) policy measures are finally paying off, with the euro area now set to register its fastest rate of growth in over 10 years in 2017. Despite the stubbornly low inflation prints, the ECB now believes this is the right time to start discussing the removal of the unconventional measures.

The tapering of quantitative easing (QE) is widely expected to begin in January 2019, with rate hikes not expected until this process is over. But whenever tapering happens, the good news for cash investors is that there is light at the end of the tunnel when it comes to the deeply negative money market yields.

Guide to the Markets presents a wide range of macroeconomic data that can help liquidity investors assess the economic backdrop and position their portfolios, covering issues including:

  • Economic data so far this year suggests a recovery has taken hold, with GDP growth of 0.6% per quarter and recent eurozone Purchasing Managers’ Indices indicating that GDP growth can accelerate further from here. Meanwhile, the picture on employment continues to brighten, while the consumer remains strong and business confidence is buoyant. (p. 4, 5, 13)
  • When it comes to normalising monetary policy, inflation has remained a stumbling block, but recent trends suggest we may now be at a turning point. The ECB wants to see sustained upward pressure on inflation before it starts tightening policy, so wage inflation and labour market trends are now under close scrutiny. (p. 5, 6)
  • Europe’s next major risk event is the October ECB meeting, at which we expect more detail on the exit plan for the central bank’s QE programme. With the market not currently pricing the first rate hike until the first quarter of 2019, and the psychologically important rate of zero until April 2020, the end of negative rates is now in sight for front-end investors.

As you consider these important topics, we will be happy to share our market views and tailor liquidity solutions to best meet your needs.