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Weekly Bond Bulletin: High conviction in high quality corporates

By Nick Gartside, Travis Spence, Derek Traynor
Robust earnings corroborate our conviction in investment grade corporate credit—which is also supported by strong technical factors and justified valuations.
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Multi-Asset Solutions Weekly Strategy Report

The S&P 500 appears set to record its fastest earnings growth rate in 2017 in six years. Non-U.S. equity markets are seeing their consensus growth estimates revised upward. While there are inevitably risks to the consensus, we believe the scope for disappointment is narrower than in recent years.
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The Weekly Brief

Safe haven assets look to be back in fashion over the last few months. Gold has risen to its highest level since the US Presidential election, while US 10-year Treasury yields have retraced nearly two-thirds of their post-election increase.
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The two-horse race that the polls predicted

By Vincent Juvyns, Stephanie Flanders
The 2017 French presidential election has been the most uncertain in the history of the Fifth Republic. But on this occasion, the opinion polls turned out to be right, with centrist Emmanuel Macron and Front National leader, Marine le Pen, both proceeding to the second round.
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Weekly Bond Bulletin: Sticking with the short

By Nick Gartside, Travis Spence, Derek Traynor
Shifting fundamentals are complicating the US monetary policy outlook. Is short duration positioning still warranted?
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May calls for June election

By Dr. David Stubbs
Theresa May announced her intention to call an early general election for Thursday 8 June. She made it clear that this election would be about her approach to Brexit, saying current divisions within Westminster jeopardise the UK’s negotiating position with the EU, which she wants to strengthen.
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The Weekly Brief

While US equity valuations no longer look particularly inexpensive, historically, valuations have been of little use in identifying market inflection points. Monitoring turns in economic momentum has been far more important for equity investors hoping to protect portfolios against bear markets.
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The Weekly Brief

The political headlines and firming economic data that dominated 1Q 2017 led risk assets to outperform, relative to fixed income, over the course of the quarter. Emerging market (EM) equities, on the back of better economic data and trade prospects for EM countries, significantly outperformed other asset classes, up 10% through the end of March.
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Weekly Bond Bulletin: Europe remains easy

By Nick Gartside, Travis Spence, Derek Traynor
Hawkish interpretations of its recent rhetoric by some market participants prompted the European Central Bank (ECB) to push back and reiterate its dovish guidance. While hawks are encouraged by the bloc’s nascent recovery, the lack of broad-based and sustained inflation should keep tighter policy off the table before 2018.
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Emerging Market Debt Q2 2017: Reflation takes root

By Pierre-Yves Bareau, Derek Traynor
Given the risks posed by protectionism, we are more cautious on open economies and those more dependent on external funding. Overall, we have shifted our focus from market beta to carry this quarter, coming off of solid first quarter performance, tighter valuations and the little market premium attached to the risks we have identified. We place an emphasis on short-end names and those idiosyncratic stories that we identify as having positive event skew.
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The Weekly Brief

Since the US presidential election soft survey data such as manufacturing PMIs, consumer confidence and business sentiment have surprised dramatically to upside. Overall, soft survey data has been beating expectations by some of largest amounts on record due to renewed optimism in the US economic recovery.
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Weekly Bond Bulletin: Benefiting from the basis

By Nick Gartside, Travis Spence, Marika Dysenchuk
Fixed income markets have been sanguine in the face of political turbulence over the past quarter. But one significant development has perhaps escaped notice: the material decline in the cost of hedging US assets for Japanese and European investors.
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Global Equities Investors Quarterly

By Paul Quinsee
Themes and implications from the Global Equities Investors Quarterly
  • The outlook for the corporate sector is improving, and near-term growth expectations are trending higher as markets price in a gentle move toward global reflation.
  • Our equity analysts forecast synchronized double-digit earnings growth globally in 2017 and 2018 after two flat years in 2015 and 2016. In Europe, a six-year drought in profit growth is now coming to an end.
  • Much of this expected improvement is already reflected in stock prices after strong gains since early 2016, but there is still room for stocks to move higher. After many years of outperformance by U.S. equities, we are finding the most promising opportunities in emerging markets (EM) and Europe.
  • Value investing has worked well in most markets over the past six months, leaving a diminished opportunity set, but we still find many attractive prospects in value stocks, especially financials.
  • Among the potential risks we are monitoring: a slowdown in China, a “melt-up” in the U.S. dollar and, of course, politics.
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Global Fixed Income Views 2Q 2017

By Bob Michele

Themes and implications from the most recent Global Fixed Income, Currency & Commodities Investment Quarterly

  • We believe the synchronizing of growth globally signals a greater probability that markets will price in Above Trend Growth during the next three to six months.
  • We expect a gradual evolution, as central banks will take years to withdraw liquidity from the system and normalize policy, giving policymakers ample time to develop coherent fiscal policies and markets a chance to adjust to a gentle rise in rates.
  • Our rate view is unchanged. We expect three more Federal Reserve rate hikes this year and 10-year U.S. Treasury bond rates to reach 3% by mid-year and 3% to 3.5% by year-end.
  • Our best ideas for the quarter: U.S. high yield, shorter-duration securitized credit and leveraged loans; outside the U.S., emerging market (EM) local currency bonds; and shorts in U.S. Treasuries, the eurodollar and European sovereigns to hedge against rising rates and a faster pace of rate hikes.
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Inflation's next phase

By Michael Hood, Benjamin Mandel
For investors, the recovery of inflation and inflation risk premia, against the backdrop of anchored inflation expectations, imply a supportive environment for risk assets. Our outlook suggests continued upward pressure on the market pricing of inflation, manifesting in higher bond yields and a widening spread between nominal and inflation-protected bonds.
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The Weekly Brief

This time last year, income investors were becoming increasingly concerned about the low, or even negative yields, that were spreading throughout fixed income markets. Recently, improving growth prospects, rising inflation and tighter monetary policy have driven global bond yields higher.
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Weekly Bond Bulletin: The importance of staying local

By Nick Gartside, Travis Spence, Marika Dysenchuk
Emerging market local currency debt has rallied since the beginning of 2017, with most of the move higher driven by the currency exposure. Is there still room to run in this sector?
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The Weekly Brief

As expected, the Federal Reserve (Fed) raised interest rates last week, but some market participants had been expecting an upward revision to their expected path for future rate rises, given the fall in the dollar and bond yields which followed the announcement. The median Fed expectation continues to be for two more rate rises this year and then three next year.
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Weekly Bond Bulletin: Surveying the sell-off

By Nick Gartside, Travis Spence, Marika Dysenchuk
The decline in oil prices has resulted in a credit market sell-off. Does recent spread widening present a buying opportunity, or should investors be worried about further losses?
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European politics update: Stopping populism in its tracks?

By Vincent Juvyns
The Centre-right victory in the Netherlands and the rise of Emmanuel Macron in the polls for the French presidential elections both give some reassurance to investors that populist forces are not about to reignite the eurozone crisis, nor derail the recovery under way in European markets.
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The Weekly Brief

Last week, the current S&P 500 bull run celebrated its eighth birthday. Since it closed at a low on March 9, 2009 the S&P 500 has returned 320% on a total return basis.
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Global Asset Allocation Views 2Q 2017

By John Bilton

Asset allocation for a world of better growth - Amid broadening global growth, we strengthen conviction in our equity overweight, increase our overweight to Japanese stocks, prefer credit to government bonds, and underweight duration.

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Weekly Bond Bulletin: The curve conundrum

By Nick Gartside, Travis Spence, Derek Traynor
While the front end of the US rates curve is adjusting to the reality of rates normalisation, 10-year yields have been little changed since their sharp upward adjustment after the US election. Do curve dynamics suggest that markets are losing faith in Trumponomics, or are other forces at play?
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100 days of change: The importance of immigration

By Dr. David Kelly
Dr. Kelly explores what the proposed changes to both illegal and legal immigration into the U.S. might mean for growth, inflation and investment returns.
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The Weekly Brief

Despite the politics dominating investors’ discussion, markets have made a calm start to the year. Year-to-date, the S&P 500 has only had one day where it has closed up or down 1%, the most tranquil start to a year since 1966.
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Weekly Bond Bulletin: Fed on the March

By Nick Gartside, Travis Spence, Derek Traynor
Strong data and a shift in rhetoric from policymakers have caused us to reappraise our view on Federal Reserve (Fed) rate rises. We now anticipate an increase of 25 basis points (bps) at the 15 March meeting. What will this mean for bond markets?
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Review of markets over February 2017

By Nandini Ramakrishnan
A summary of the factors driving global markets over the last month
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The Weekly Brief

The relatively higher valuation of US stocks has many investors looking for opportunities in Europe. Last week the S&P 500 closed at a forward P/E ratio of 17.7x, 11% above its 25-year average.
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Weekly Bond Bulletin: Dissecting the disconnect—Politics vs. fundamentals

By Nick Gartside, Travis Spence, Derek Traynor
Political risk across Europe remains elevated. In France, the chance of a Le Pen victory in the presidential elections remains low, but a narrowing in the polls over the last week has caused French spreads to widen vs. Germany, overshadowing otherwise strong fundamentals across the eurozone.
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The Weekly Brief

US Federal Reserve Chair Janet Yellen’s testimony before the US Congress last week provided markets with a bit more insight into the Fed’s current thinking. More hawkish than before, Chair Yellen acknowledged rising inflationary pressures and strong US labour market.
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Weekly Bond Bulletin: Clamoring for credit

By Nick Gartside, Travis Spence, Derek Traynor
The risk-on rally continues apace, with strong investor flows into credit and emerging market sectors. While Trump’s latest tax pledge has added legs to the rally, the strength of underlying fundamental data remains the critical driver of investor demand.
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The Weekly Brief

Investors are beginning to show signs of fiscal frustration as the new administration has provided very little clarity over any future tax cuts or infrastructure spending. With the US budget deficit at 3.2% of GDP and net debt at 78% of GDP (the highest level since the Second World War), the scope for fiscal stimulus is somewhat limited.
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New challenges for Emerging Markets: Risk or opportunity?

By George Iwanicki
The unexpected election of Donald Trump as U.S. President sparked dramatic change across the global investing landscape - and Emerging Markets were hardly immune.
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Weekly Bond Bulletin: Vanishing volatility - time to hedge?

By Nick Gartside, Travis Spence, Derek Traynor
Despite the potential for further political noise ahead, market volatility is currently conspicuous by its absence.
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The Weekly Brief

While the ECB is expected to remain supportive this year, Mario Draghi and team have reason to be pleased with recent growth figures. Eurozone GDP posted a higher than expected 1.8% year on year growth rate for the fourth quarter of 2016.
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Weekly Bond Bulletin: The dollar dilemma

By Nick Gartside, Travis Spence, Derek Traynor
A shift in political rhetoric since the presidential election and  stronger overseas growth dynamics have contributed to a pause in the upward march of the US dollar. Monitoring the drivers of the currency will be vital for interest rate and bond market performance calls.
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BoE keeps rates on hold and options open

By Nandini Ramakrishnan
The Bank of England (BoE) leaves monetary policy unchanged, increases UK growth for the year and will monitor rising inflation.
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The Weekly Brief

The promise of increased fiscal stimulus was one of the major forces that drove financial market performance in the fourth quarter of 2016. However, in the first month of 2017, hope is beginning to wane. Although the new US administration is only a few days old, rhetoric has initially been focused on trade and healthcare reform and there has been little mention of any incoming fiscal policy stimulus.
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Weekly Bond Bulletin: Understanding the unexpected emerging market rally

By Nick Gartside, Travis Spence, Derek Traynor
Contrary to expectations, returns from emerging market debt have been strong since the US election. Although spreads are now at multi-year tights, we believe the rally can run further as real yields remain attractive and the asset class is supported by improving fundamentals and constructive technical factors.
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UK GDP: Continued strong growth numbers 

By Alex Dryden
With the economy growing at 2% and inflation hitting a 30-month high in December, the Bank of England is in a tough spot. In normal times, strong economic growth and higher inflation would lead to tighter monetary policy.
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The Weekly Brief

Last week’s UK inflation print reached 1.6% (y/y), the highest rate of price increases since mid-2014. Rebounding inflation is a product of rising oil prices, which rose to nearly 60% in 2016, and the weaker currency, which fell 14% on a trade-weighted basis last year.
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Weekly Bond Bulletin: The duel of the animal spirits

By Nick Gartside, Travis Spence, Derek Traynor
Markets are usually driven by either fear or greed, but in the current environment these two animal spirits are both in evidence. How is this dynamic playing out in bond markets—and which mood will take the upper hand?
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The Weekly Brief

Amidst the headlines from US political speeches last week, one data release made waves from across the globe. China’s producer price index (PPI) rose at the fastest pace in more than five years for the month of December, much stronger than expected at 5.5% y/y compared to consensus of 4.6%, mainly due to a pick-up in mining and materials.
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Weekly Bond Bulletin: An eye on supply

By Nick Gartside, Travis Spence, Marika Dysenchuk
The robust improvement in growth dynamics that began in the US at the end of last year now appears to have taken hold globally—but government bond yields have barely moved. A look at supply helps us understand why this might be the case.
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Entering the reflation era

By Pierre-Yves Bareau
We are entering a new investment paradigm: the era of "lower for longer" and "search for yield" has now been replaced by an era shaped by higher growth, inflation and rates.
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The Weekly Brief

Emerging markets (EM) was one of the surprising asset classes of 2016. Both EM equities and EM debt returned over 10% last year (USD). However, investor sentiment towards EM began to sour in the fourth quarter.
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Weekly Bond Bulletin: The “January effect” - Why this time may be different

By Bob Michele, Nick Gartside, Travis Spence
The strong trend in economic data suggests that this January may not be as negative for risk assets as recent years, and instead could bring a rise in interest rates. Nevertheless, we do not anticipate a drastic backup in Treasury yields, so long as core inflation remains contained and supportive technical factors persist.
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The Weekly Brief

As 2017 begins, investors reflecting upon a politically tumultuous 2016 should actually be fairly pleased by the returns that global asset markets have delivered. Global equities rose around 10% (with small caps far exceeding that) and global bonds eked out a modest return.
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The Weekly Brief

Central bank policy divergence lives on. Last week, the US Federal Reserve raised its policy rate by 0.25% and indicated more increases could be in store for 2017. Yet in the same week, the Bank of England and Swiss National Bank (SNB) maintained their current levels of low and negative interest rates, and accompanying asset purchases (both) and intervention in currency markets (SNB).
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Weekly Bond Bulletin: Making growth and inflation great again

By Bob Michele, Nick Gartside, Travis Spence
Donald Trump’s US election victory has dramatically altered the outlook for growth and inflation and, ultimately, for global fixed income. Which sectors will feel the pressure—and which stand to benefit?
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2017 Outlook

By Stephanie Flanders
New year, new challenges OR a change in the economic weather: What will 2017 bring for global investors?
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The Weekly Brief

Last month’s OPEC agreement to cut oil production by 1.2m barrels per day sent the Brent crude oil price soaring to over $54 per barrel, its highest value since July 2015. This week’s chart highlights the historic inverse relationship between the value of oil and the US dollar.
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Weekly Bond Bulletin: Searching for the European spark

By Bob Michele, Nick Gartside, Travis Spence
Uncertainty around the Italian referendum and the European Central Bank (ECB) meeting served as a reminder that political and policy uncertainty are holding back eurozone assets.
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The Weekly Brief

The prospect of tax cuts and infrastructure spending in the US have increased expectations of higher US inflation and a slightly faster pace of US Federal Reserve rate rises.
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The Weekly Brief

Investors are continuing to decipher what a Trump presidency means for markets but one of the clear messages is that growth looks to be moving from monetary policy to fiscal policy in Trump's time in office. As this week's chart shows, the changeover has led to a divergence in performance between equities and fixed income.
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Rising inflation: Options to help protect your portfolio

By Dr. David Stubbs
Inflation rates are set to rise across the developed world. Rising inflation raises the bar for investment managers as clients require better returns just to stand still.
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The Weekly Brief

Last week, the UK saw a mix of data points: the Consumer Price Index (CPI) inflation fell to 0.9% year on year, from 1% in September, which was below expectations given the drop in the pound (GBP). While this was a small slowdown in the rate of inflation, we still expect prices to start ramping up as we enter the new year.
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Political headwinds continue to trouble Europe

By Maria Paola Toschi
The impact on Europe of the UK’s vote to leave the European Union (EU) remains unclear, and other landmark events are now looming large on the political horizon. Italy’s major Constitutional referendum, scheduled for 4 December, could have a direct impact on the country’s political future.
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The Weekly Brief

As investors continue to digest the results of the US presidential election, the political focus is now back on Europe towards the end of 2016 and into 2017. As this week’s chart highlights, countries representing 41% of the European Union’s (EU) GDP are due to hold elections in the next 12 months and this number does not include political events such as the start of UK exit negotiations, the Italian referendum in December and Switzerland’s negotiations with the EU.
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A guide to US government

By Nandini Ramakrishnan
As the US headed to the polls on 8 November 2016, markets were expecting a Hillary Clinton (Democrat) victory. Instead, on 9 November, Donald Trump (Republican) was elected to serve as the 45th US President of the United States.
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U.S. elections: A populist victory

In the long-run, investors would do well to make sure that they are well diversified outside of U.S. stocks and bonds and that they have sufficient exposure to alternatives and international securities.
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The Weekly Brief

This Tuesday, the Americans will head to the polls to elect state representatives and the president. While it is difficult to isolate the election’s effect on asset classes, there are two currencies which have been bearing the brunt of investor jitters: the Mexican peso and the Japanese yen.
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Bank of England Inflation Report: A brighter outlook for the UK economy, but post-Brexit policy fog lingers

Reflecting the solid economic data of recent months, the Bank of England (BoE) has raised its short-term forecast for GDP growth and inflation.
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The Weekly Brief

The Bank of Japan (BoJ) is widely considered to be the world’s most adventurous central bank when it comes to exploring the depths of unconventional monetary policy.
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European banks: It’s not all bad news

European banks have had a particularly tough 2016, with the Stoxx 600 banking sector seeing declines of over 20% so far this year. This puts the European banking sector on track for its worst year since the depths of the eurozone debt crisis in 2011.
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The Weekly Brief

Last week, UK inflation was released as 1% year on year, the highest rate of change in prices since 2014. But prices are likely to continue to rise sharply in the coming months.
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The Weekly Brief

Last week was characterised by large moves in sterling and UK Gilt markets. For several months, DM government bond yields have moved downwards together, particularly in the middle and long end of the curve.
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The Weekly Brief

2016 has been a tough year for European banks with the sector declining by 14% year-todate,as a combination of tougher regulations, legal fees and the dawn of negative interest rates have eaten into profits.Investors have been nervous about the financial health of European banks in recent weeks but despite intense media speculation, this week’s chart shows that the cost of purchasing insurance on European financial firms has ticked up only slightly this year and remains well below the highs last seen in the eurozone debt crisis.
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The Weekly Brief

The US Federal Reserve (Fed) opted to keep interest rates unchanged in their September meeting, in line with market expectations. Despite holding fire for now, it looks likely the Fed will raise interest rates in December as long as US economic data remains healthy between now and then.
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The Weekly Brief

Investors have come back from the summer holidays to find markets exhibiting some volatility. We have now seen 73 days so far this year with a move of more than plus or minus 1% in the Stoxx 600 Europe index.
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The UK economic and equity landscape post-Brexit

Despite the surprisingly strong bounce in UK economic data over the summer, we remain fairly downbeat about the economic outlook heading into 2017.
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Not quite the new era for the DoJ

The Bank of Japan (BoJ) changed its policy framework, introducing a “yield level target” and a commitment to inflation-overshooting, while leaving policy rates unchanged.
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The Weekly Brief

After the Brexit vote the UK purchasing managers survey for the dominant service sector fell off a cliff, which historically would have been consistent with the U.K. experiencing a recession in the coming months. The latest result shows a rebound suggesting that the immediate economic damage may not be as bad as looked likely straight after the vote.
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The Weekly Brief

Last week, the ECB left the eurozone’s monetary policy unchanged, as markets widely expected. But some key messages remain clear: Mario Draghi reiterated that the central bank will keep rates low, keep buying assets, and keep supporting lending in the region.
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Europe’s recovery after Brexit and what it means for investors

By Vincent Juvyns, Nandini Ramakrishnan, Alex Dryden
After favouring Europe for several years, investors now appear to be abandoning the region.
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The Weekly Brief

The UK saw big declines in many indicators released in July and August after the referendum. But now, some of the same survey data appears to be turning up. Last week, the UK manufacturing Purchasing Managers’ Index (PMI) for August showed a surprisingly strong gain over the previous month, with the overall index rising from 48.3 to 53.3.
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The Weekly Brief

The US economy is showing signs of picking up. New home sales rose sharply to the highest level since 2007 but are still 50% below their 2005 peak, suggesting further upside potential. House prices also rose by 5% y/y. After a weak period for durable goods orders, they moved up by 4.4% in July.
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The Weekly Brief

As central banks loosen monetary policy further, the challenge for income investors continues to mount. As highlighted in this week's chart, the hunt for yield has shaped equity performance year-to-date, with those S&P 500 sectors generating the highest dividends seeing some of the largest price returns over the course of 2016.
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The Weekly Brief

The UK’s EU referendum may be over but political risks still remain in Europe. As this week’s chart shows, countries representing 41% of EU GDP are due to hold elections in 2017.
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The Weekly Brief

The Bank of England’s monetary policy meeting last week delivered a multi-faceted package of supportive measures. The interest rate cut of 0.25% was accompanied by a plan to purchase up to GBP 10 billion in corporate bonds.
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The Weekly Brief

Market expectations for US Federal Reserve (the Fed) policy have swung wildly this year. Straight after the most recent Fed meeting, futures implied a 55% probability that the Fed will not raise rates at all this year, a 37% chance of one rate rise and only an 8% chance of two.
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A small opening for a September rate hike

By Dr. David Kelly, Ainsley Woolridge
The Federal Open Market Committee (FOMC) yesterday announced its decision to maintain the Federal Funds rate at the current range of 0.25% to 0.50%.
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The risk of recession... (and how to be prepared for one)

By Dr. David Kelly, Ainsley Woolridge
A statistical model of patterns in economic growth over the past 20 years suggests a low risk of recession starting within the next few quarters.
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Italian banks: a new political test for Europe after Brexit

By Maria Paola Toschi
The banking sector has represented one of the main sources of turbulence for European equities since the beginning of this year. European banks are facing a tough environment created by the unprecedented phenomenon of negative yields and the UK electorate’s decision to leave the European Union (EU). From its current position at the epicentre of the crisis, Italy must now address the ongoing structural challenges that have driven up its stock of non-performing loans (NPLs).
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The Weekly Brief

Last week, the European Central Bank (ECB) released their latest Bank Lending Survey (BLS) which highlighted that credit conditions within the eurozone continued to improve throughout 2Q 2016. As shown in this week’s chart, overall demand for consumer credit has picked up whilst the other two components – housing loans and corporate credit – were slightly weaker.
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The Weekly Brief

As major central banks enter into negative rate territory, the hunt for yield has entered a new chapter this year. This week’s chart looks at the year-to-date (YTD) performance of higher-yielding assets versus the global equity market.
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The BoE holds fire on rate cuts

By Alex Dryden
- The Bank of England (BoE) surprised markets today by deciding to keep interest rates unchanged at its July meeting. However, the announcement paves the way for monetary policy action later on this summer.
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The Weekly Brief

Financial markets are still digesting the economic and political ramifications of the UK vote to leave the European Union. The shift in US monetary policy expectations post-Brexit has been particularly dramatic.
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Payroll growth strikes back

By David Lebovitz
After a very weak May employment report, which led many to question the health of the US economy, job gains came roaring back in June. According to the Bureau of Labor Statistics (BLS), the US economy added 287,000 jobs last month, beating consensus expectations by a large margin. Last week's report stands in contrast to the small gains seen in May, as well as the steady pace of additions over the past few years. The key takeaway for investors, however, is that the labour market is continuing to tighten.
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The Weekly Brief

After the announcement of the UK vote to leave the EU on 24 June, global markets reacted with immediate risk-off sentiment, but a few days later, most global equity markets had recovered. In fact, the UK FTSE 100 had recovered all the post-Brexit losses by Thursday last week.
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The Weekly Brief

The projections from the US Federal Reserve (‘the Fed’) officials have become a major market focus, given the role central banks have taken in stimulating the economy since the 2008 financial crisis. As part of the projections, Fed officials give their view on where they believe the Fed funds rate will be at the end of the next 2-3 years as well as their forecast for the ‘longer run’ interest rate.
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The Weekly Brief

This week’s chart shows medium term inflation expectations derived from the swaps market. It shows that investors’ expectations of inflation have fallen to their lowest point since Shinzo Abe came to power in December 2012 and are now some way off the official 2% target.
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The Weekly Brief

In June, the European Central Bank (ECB) is set to begin purchasing eurozone non-financial corporate bonds for the first time. As this week’s chart shows, the ECB has been successful in driving down corporate yields without even buying a single bond, as yields approached record lows.
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Tightening, but not strengthening

By David Lebovitz
The US economy is running out of workers as it approaches full employment, and although the labour market is still tightening, it is no longer strengthening. In addition, while payroll growth should rebound in the coming months, it will be important to monitor whether weakness in corporate profits is beginning to hamper jobs growth. The sell-off in equities and rally in Treasury markets over Friday suggests that the market was viewing “bad news as bad news,” and that upcoming economic data will need to reflect a strengthening US economy in order for the Fed to raise rates sometime this summer.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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US equities grinding slowly higher

As written in this week's Thought of the Week, US equities have been treading water over the last year as the Conference Board leading economic indicator struggled to make gains. However, the latest rise in the Conference Board indicator provides some tentative cause for optimism that this cycle for US equities isn’t about to end just yet. Both the last two equity bear markets were preceded by declines in this leading indicator, which so far is showing no warning sign. The resilience is being driven by continued strength in the labour and housing markets. While these remain healthy we think US equities can grind slowly higher.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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The outlook for gold

As written in this week's Thought of the Week, in a volatile year for investors, gold has regained its shine. The precious metal had its best first quarter for decades, rising 16%, as interest rates fell and central banks expanded their use of unconventional monetary policy tools. That good performance carried on into the second quarter. On 2 May, gold was up more than 21% for the year, but has since fallen by almost 5%. This reminds us that gold is not a substitute for traditional portfolio anchors such as cash, which doesn’t lose money in nominal terms. So what is the outlook for gold? The era of extraordinary central bank action is far from over and related concerns will continue to bring buyers into the asset. However, if growth proves resilient in the United States and interest rates rise there, gold may lose some its shine.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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We have come a long way

As written in this week's Thought of the Week, markets are now 100 trading days into 2016 and this week's chart takes stock of how performance has been year to date (YTD) for a number of asset classes. With most equity markets flat on the year, an investor who had been on holiday since January 1st could be forgiven for concluding that not a lot had happened in markets in the last five months. However, we have come a long way since mid-February, in some cases rebounding as much as 11%. But despite a strong recovery in equities, 'safe-haven' assets such as gold and government bonds continue to outperform, suggesting that many investors continue to remain cautious on the immediate economic outlook.
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Are the tides turning for UK equities?

By Alex Dryden
  • A falling pound and a stabilisation in commodity prices are changing the dynamics for UK equity investors. So far this year, only 21% of active fund managers have outperformed the FTSE All-Share Index, compared to 79% in 2015.1
  • Top decile UK fund managers in 2015 had, on average, a 75% allocation to mid and small cap stocks. To put this in perspective, the FTSE All Share has just a 20% weighting to mid and small cap.2
  • Given the potential for a turnaround in large cap stocks, investors should assess whether they are comfortable with taking on such a heavy overweight to mid and small cap stocks.

1 Source: Morningstar, data as of 18 May 2016.
2 Source: Morningstar, data as of 18 May 2016.

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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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FX reserves beginning to stabilise

As written in this week's Thought of the Week, one of the most closely watched Chinese data points this year has been the country’s foreign exchange (FX) reserves. Investors have been concerned that falling FX reserves could eventually result in China being unable to manage its pegged currency and could result in a sharp devaluation of the Yuan, sending shockwaves across global markets. However, as this week's chart shows, China's FX reserves have begun to stabilise as reserve levels increased by $6 billion in April – the second consecutive month of inflows – which is the first time this has happened since June 2014. Improvement in capital flows, coupled with signs of stabilisation across Chinese economic data (such as retail sales and industrial production) should help ease investors’ fears of a hard landing for China in the near term.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Scuppered market expectations

As written in this week's Thought of the Week, after the US Federal Reserve (the Fed) raised interest rates for the first time in nearly a decade in December, investors braced themselves for several interest rate hikes in 2016. However, a string of disappointing data from the US—combined with significant market volatility—has scuppered market expectations. As we highlight in this week’s chart, the implied probability of a Fed interest rate hike in June now stands at just 12%. In fact the markets are nearly 50/50 on whether there will be a rate hike at all this year, with just a 54% possibility of a 0.25% increase in rates by December.
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The future of monetary policy

By Stephanie Flanders, Michael Albrecht, Benjamin Mandel
  • In the aftermath of the first Federal Reserve (Fed) rate hike in nearly a decade, attention has briskly shifted to the future. What’s next for policy interest rates? How will central banks deal with their extraordinarily large balance sheets? In this paper, we take an even longer view. What does developed market monetary policy look like in future cycles, and what does it imply for markets?
     
  • Even as central banks experiment with mildly negative interest rates, we believe that balance sheet policies similar to quantitative easing will remain a regular feature of the landscape. Born of necessity when policy rates hit their zero lower bound, quantitative easing emerged to repair markets and ease financial conditions.
     
  • The process of experimentation with “unconventional” policy will continue so long as central banks face the limit of a lower bound on policy rates. One idea that has gained traction is the direct monetization of fiscal stimulus by central banks (i.e., helicopter money). Such policies need to balance the exigency of economic stimulus with the inherent risks, but it is fair to say that they are less unconventional now than they used to be.
     
  • More active balance sheet policy and muted variation in policy rates imply that yield curve steepening and flattening in subsequent cycles will be more moderate. The inversion of the curve that historically preceded recessions may not arise and, if it does, may not send the same signal in future cycles.
     
  • All of these developments are a mixed blessing for multi-asset investors. On one hand, central banks are finding ever more diverse and creative solutions to achieve their mandates. On the other, it suggests that the warning bell coming from the yield curve will be less informative than it used to be about the most worrisome of risk-off outcomes—when the economy tilts into recession. In our view, variations in quantitative easing among central banks will define the degree of monetary policy divergence in the coming years.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Don't bank on the Bank of Japan

As written in this week's Thought of the Week, don’t bank on the Bank of Japan (BOJ) was the lesson investors learned last week. Markets had got excited about the potential for further easing at the April meeting. The BOJ downgraded their growth and inflation outlook and pushed back the time frame within which they expect to achieve their 2% inflation target. Despite this, the BOJ refrained from easing further, disappointing markets. The yen strengthened and Japanese stocks fell sharply. Bank stocks, which investors had hoped might benefit from an introduction of negative funding rates, were particularly hard hit. We still think the BOJ is likely to ease further this year but the timing remains uncertain.
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A bullish outlook for high yield

By Peter Aspbury, Michalis Ditsas
  • Supported by strong fundamentals, low default rates and attractive valuations, the European market looks set to continue its recent run and produce significant positive performance by the end of the year.

  • From a fundamental perspective, European high yield is benefiting from improving credit dynamics, very low default rates and rising corporate earnings. The European market also has minimal exposure to the troubled energy and mining sectors, while technical factors are stacked in Europe’s favour thanks to limited supply and strong demand driven by investors’ thirst for yield.

  • Valuations remain attractive, particularly given the strong fundamentals supporting the market. Spreads are cheap compared to history and yields are very attractive compared to government bonds. Europe high yield also looks cheap compared to the US when the European market’s higher credit quality, lower risk free yields and shorter average duration are taken into account.

  • These strong fundamentals and attractive valuations make European high yield one of the brightest spots in the global credit universe. Critically, however, current market conditions underscore the importance of security selection and active management to drive returns from the asset class. The benchmark will never avoid the losers, be it sectors or individual issuers, which is the key to long-term outperformance in high yield credit funds.
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Time to revisit emerging markets

By Pierre-Yves Bareau

In our base case scenario of muddle-through growth, with a gradual recovery of EM growth alpha and moderately tighter financial conditions, we prefer to base our core exposures on higher quality credit names with stronger balance sheets and fiscally prudent positions. This reflects our more cautious longer-term view, given the still- considerable downside structural risks from commodities, China and U.S. monetary policy normalisation. For the second quarter, however, the prospect of lower market volatility and a cyclical stabilisation leads us to favour tactical positions in idiosyncratic high yield stories.

From a sector perspective, we remain constructive on duration, as the challenging growth backdrop, global easing bias, currency stability and generally moderate inflation dynamics should continue to support local currency rates. While yields have rallied this past quarter, we still believe there is further room for compression.

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China at the crossroads

China’s economic transition from investment-driven growth towards a more sustainable market-based model focused on services and consumption appears to be well underway. However, achieving a smooth transition is being made more challenging by several structural obstacles.

In this paper, Emerging Market Debt portfolio managers Ai Ling Ngiam and Derek Traynor look at some of these structural issues, focusing on how excessive levels of leverage and industrial overcapacity have the potential to derail China’s economic transition. We also examine how China’s capital account is coming under pressure as the country embarks on a programme to liberalise its exchange rate regime.

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Weekly Strategy Report

This week's report is authored by a guest contributor, Benjamin Mandel, Executive Director Global Strategist Multi-Asset Solutions.

  • With the Fed's initial rate hike in the rear view mirror, we refocus on the key debates that will shape U.S. monetary policy over the next 12-18 months.
  • The path of inflation is difficult to predict but is not a total wildcard; core inflation is poised to slowly rise. Terminal policy rates have been falling and central bank balance sheet policies are becoming the new norm; both of these complicate the interpretation of yield curve dynamics.
  • From the perspective of a multi-asset investor, we see the initial rate hike, combined with the Fed’s commitment to gradualism, as an important anchor insofar as rising short-term rates will continue for the foreseeable future. In contrast, given the relative murkiness of medium-term factors affecting monetary policy and the long end of the yield curve, we remain leery about taking directional views on duration. We also caution against taking the flattening yield curve as evidence of an imminent end to the business cycle.
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Retailers facing significant competition from internet sales

As written in this week's Thought of the Week, over the past few weeks, questions about the strength of the U.S. consumer have arisen from disappointing department store earnings announcements and an October retail sales number that came in below consensus expectations. Although the outlook for consumer discretionary was weakened by several retailers reporting worse than expected earnings, it is important to recognize, when gauging the current and future strength of the consumer, that the majority of consumer spending has shifted from a typical trip to the mall toward experiences and services.
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Skirting the hard landing

By George Iwanicki

While we do not believe an EM crisis is under way or inevitable, we believe emerging markets equities are still range-bound, constrained by the triumvirate of headwinds. Valuations are not sufficiently cheap to prompt a tactical "buy today" mentality. However, they are cheap enough (including consideration of the EM currency de-rating) to encourage investors to be setting valuation or fundamental "guideposts" to add to the asset class rather than run from it because of the news flow and worries that have overtaken investors.

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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Surprise! Economic data on the upside

As written in this week's Thought of the Week, Eurozone economic data is surprising positively relative to expectations but US data, having been worse than expected all year, is no longer disappointing. Even Chinese data, which has been consistently missing the mark since April and has been a major cause of the weakness in stock markets since then, is now closer to forecasts.

This is a familiar pattern: after a period of disappointment, economic data often surprise on the upside because expectations are lower. Periods when surprise indices rise together are often good for equities. If US economic releases follow the positive trend in the Eurozone it may only require Chinese data to be less negative for stocks to continue rallying. This shouldn’t be hard given how gloomy everyone is about China and the stimuli that are now supporting the economy.
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A brave new world: the deep de-carbonization of electricity grids

By Michael Cembalest
Previously we analyzed the individual components of the electricity grid: coal, nuclear, natural gas, wind, solar and energy storage. This year, we look at how everything fits together in a stytem dominated by renewable engergy, with a focus on cost and CO2 emissions. The importance of understanding such systems is amplified by President Obama's "Clean Power Plan", a by-product of which will likely be greater use of renewable energy for electricity generation.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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The start of a year end Rudolph Rally

As written in this week's Thought of the Week, October was a good month for equities but most markets outside the US remain some way below their highs for the year. We think that this is probably the start of a year end "Rudolph Rally" and that the opportunity to add to equities hasn’t been missed. The latest Eurozone PMIs have shown no sign of a slowdown in European growth.

The US ISM surveys have rebounded with the non-manufacturing new orders component bouncing back strongly to 62, suggesting US growth remains robust. The IMF forecast that Chinese growth will slow next year but still remain healthy at over 6% and that global growth will actually accelerate to 3.6%. Furthermore the ECB have made clear that they could deliver an early Christmas present in the form of additional stimulus, whilst a Fed rate rise would signal US economic strength.

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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Central bank week and unconventional monetary policy

As written in this week's Thought of the Week, last week was central bank week – The US Fed, the Bank of Japan, and the oldest central bank in the world: the Sveriges Riksbank. On Wednesday, Sweden’s central bank left rates unchanged but added more (from SEK 135bn to SEK 200bn) to its quantitative easing (QE) programme. The extra six months of purchases will run from January to June 2016.

While central banks often see their currency depreciate after an easing announcement, the Swedish krona actually rose versus its major peers. Perhaps because policy makers didn’t increase the probability of a rate cut by year-end and inflation in the country is actually starting to come through. Bond markets did react in the expected way: 2-year bond yields in Sweden, France, Finland and Belgium fell during the week. The era of unconventional monetary policy continues.

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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Gradual improvement in Eurozone credit demand

As written in this week's Thought of the Week, the latest ECB Bank lending survey highlighted a gradual improvement in Eurozone credit demand despite the rising global headwinds. As we can see in this week's chart taken from page 18 of the Guide to the Markets, total credit demand has declined from last quarter's results but the overall trend is encouraging.

The latest results also highlighted significant improvement in credit demand in Italy and Spain, additional evidence that the periphery is beginning to drive economic momentum in the Eurozone. Overall, we continue to remain constructive on the growth prospects for the region especially, if sustainable drivers of the economy such as credit conditions, continue to pick up speed.

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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Renewal of optimism for the ZEW survey

As written in this week's Thought of the Week, one year ago Germany’s DAX index bottomed. Back then, optimism about German growth had been falling sharply, illustrated by the ZEW survey. A few months later, the DAX rebounded in tandem with a bounce in this survey. This summer, the ZEW figures have again fallen as investor optimism diminished. However, history could repeat itself in the coming months with a renewal of optimism.

We expect a stabilisation in the Chinese growth outlook but German domestic demand, which is far more significant for the economy than exports to China, should support German economic expectations regardless of Chinese demand. Given our expectation that German growth will be close to 2% next year, investors should watch the ZEW survey for signs of an attractive entry point for DAX-listed equities, which appear to have already priced in recent concerns. The other major German survey from the IFO suggests that a pick-up in the ZEW survey may be just around the corner.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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The Weekly Brief

As written in this week's Thought of the Week, this past week was a volatile one for oil. On Tuesday, WTI posted an impressive intraday gain of 5%, as did Brent Crude, closing above $50 for the first time in a month. The low oil prices of this year have been attributed to forecasts of global production growing faster than consumption, but the most recent weekly US crude production report could change the story. The report, published on Tuesday, showed a fall in US September crude production. It is unclear whether this is a blip or an indication of a more meaningful supply contraction that could spoil oil’s range bound summer.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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European Car Manufacturers: In the Slow Lane

As written in this week's Thought of the Week, last week was a tough week for the European Auto sector as Volkswagen’s US business admitted to rigging emissions tests. Concern surrounding the consequences for Volkswagen and other automakers has led the European Auto and Parts index to fall 6.9%. Weak pricing power and exposure to emerging markets such as China, where growth is slowing, has led to increased uncertainty and pressure in the market.

This chart shows that during the past 12 months automakers initially outperformed the market but recently have underperformed. European car manufacturers are perhaps in the slow lane, but it’s not all bad news for these companies with the potential for further euro weakness being viewed as a positive.

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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Unemployment Rate and Consumer Confidence

As written in this week's Thought of the Week, whilst all focus was on the Fed last week, some important European data points will be released this week. Eurozone consumer confidence is released on Tuesday and PMIs on Wednesday. Consumer confidence is close to pre-crisis highs but we believe it can rise further in the medium term. Eurozone unemployment has been falling steadily over the last two years and is now showing signs of falling at a faster pace.

Our chart shows that the change in the unemployment rate is closely linked with consumer confidence. As consumer confidence increases consumers spend more, which boosts the economy and reduces unemployment. This in turn further boosts consumer confidence creating a virtuous cycle. This positive feedback loop still has plenty of room to run in the eurozone given that unemployment remains very high and therefore has the potential to fall much further.

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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Taking the long view: Strategies for long-term investors

By Roberts Grava

Roberts Grava and Rafael Silveira define the prerequisites for successful long-term investing and review its unique opportunity set. Long-term institutional investing, as practiced by the leading sovereign wealth funds, enjoys large strategic advantages and a decisive tactical edge over investing with a shorter time horizon:

  • A long-term strategy allows for fundamental themes to fully develop.
  • By taking positions with high potential payoffs despite possibly uncertain timing, the strategy both shapes the future and profits from it.
  • Paradoxically perhaps, the long view, coupled with ample resources, can exploit tactical opportunities created by short-term investors under pressure to liquidate holdings due to margin calls and liquidity demands.
  • More broadly, a long-term strategy stands to benefit from mispricings arising from errors in evaluation and elevated risk aversion.
  • Finally, long-term investors’ ability to absorb the liquidity risk inherent in unlisted and illiquid assets can generate a premium return.
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Investing with composure in volatile markets

James Liu discusses three simple principles that can help investors maintain this balance: keeping market volatility in perspective, focusing on longer investment time horizons and maintaining portfolio discipline:

  • Market volatility has begun to increase after several years of calm. Investors should stay focused on long-term market fundamentals instead of short-term news.
  • The volatile and asymmetric returns that are experienced on a daily basis are smoothed over during monthly and annual periods. Expanding the investment holding period over years and decades has historically improved the risk/return profile of an investor's portfolio.
  • Diversified, regularly rebalanced portfolios have typically resulted in higher Sharpe ratios than other equity asset classes over 10-, 15- and 20-year horizons.
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The Weekly Brief

One page snapshot of market performance and key economic releases for the coming week.
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Back to School

As written in this week's Thought of the Week, it's been a tough summer for stock markets with investors probably wishing they'd followed the old adage "Sell in May and go away." The FTSE All Share is down nearly 10% since May. As the school holidays draw to a close and investors return from their summer breaks, it's worth noting that intra-year corrections of this magnitude are the norm rather than the exception.

In 17 of the last 25 year the last four months of the year have delivered positive returns, with the average return in those positive periods being 8.0% for the FTSE All Share. We don't believe this market selloff is the precursor to a recession and, if we're right, history suggests there is money to be made before the New Year.
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Keep Calm and Stay Invested

As written in this week's Thought of the Week, on what perhaps should have been a quiet August Monday last week, markets went into panic. Investors were rattled by the collapse in China’s stock market, the devaluation of the Yuan and fears of the country’s economic slowdown. Volatility hit record highs: both the S&P 500 VIX and Euro VSTOXX peaked at 40.8 compared to respective five year averages of 17.5 and 23.0.

These global equity drawdowns were not foreseen, and some portfolios did suffer losses, but it is important to remember the long-term. If an investor had stayed fully invested in the MSCI ACWI over the past 14 years, their returns would be over 180% — yet, if this same investor had missed even just the 20 best days of the ACWI’s performance, their investment would be in the red. Keep calm and stay invested.
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Recent Market Events: Regarding the Chinese Renminbi and recent market corrections

By Richard Titherington
Comments from Richard Titherington, CIO Emerging Markets and Asia Pacific Equities, regarding the Chinese Renminbi and recent market corrections.
 
Panic selling can create opportunities for long-term managers with discipline and stock selection expertise to buy stocks that they previously thought were too expensive. Our Emerging Markets Equity team is revisiting their portfolios and looking to add to high conviction ideas whose share prices have corrected to attractive levels.
 
Historical analysis suggests that investors can potentially enjoy significant upside when entering the markets at low Price to Book levels.
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Listen to Socrates

As written in this week's Thought of the Week, with continuous debate back and forth on the timing of both the US Fed and Bank of England's impending rate hikes, investors are paying attention to even the smallest of changes. UK CPI inflation released last Tuesday was higher than expected at 0.1%, versus 0.0% consensus. Markets reacted with the pound strengthening against the dollar, reflecting the likelihood of an earlier rate rise.

Yet, global disinflationary pressures from cheaper Chinese imports and falling commodity prices could counteract a pick-me up in domestic demand. Across the channel, Eurozone five-year/five-year inflation expectations dropped dramatically on the news of the Renminbi's devaluation, as highlighted in the chart. Continued imported deflation could force the ECB to extend its quantitative easing programme. When predicting central banks' next moves across the world, investors would be wise to listen to Socrates: "The only true wisdom is knowing you know nothing."

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Chinese yuan devalued — Reform not stimulus

By Tai Hui
This bulletin, written by Tai Hui, Chief Market Strategist — Asia, discusses the PBoC’s move to devalue the Chinese currency and how this decision will impact economic growth in region.
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Dr. David's August 2015 Commentary: The wage puzzle (short version)

By Dr. David Kelly

Dr. Kelly's Commentary for August 2015:

The July U.S. jobs report was solid and mostly in line with expectations. However, it is notable that, in a steadily improving job market, both labor force growth and wage growth remained weak. We have argued in the past that most of the labor force problem is structural rather than cyclical. That is to say, it is largely due to the retirement of babyboomers, a surge in disability benefits and a growing number of Americans who are essentially excluded from the job market due to prior felony convictions, educational deficiencies and issues with addiction. All of these are important issues and deserve the urgent attention of the government.

However, unlike a general lack of economic demand, they cannot be fixed by monetary or fiscal stimulus. Wage growth also remains very weak with wages of production and nonsupervisory workers up just 0.1% in July compared to June and up just 1.8% year-over-year. This is remarkably different from the last three economic expansions. The July jobs report showed only a marginal drop in the unemployment rate from 5.28% to 5.26%. However, the last three times the unemployment rate hit 5.3% on the way down, wage growth was much stronger, achieving year-over-year gains of 3.3% in November of 1988, 3.4% in June 1996 and 2.6% in January 2005.

So why are wages so weak, this time around? A full explanation is elusive. However, statistical analysis suggests that, as is in the case of labor force participation, the problems are largely structural or else due to factors that are mostly independent of demand in the economy.

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Balancing Investment Objectives for Colleges and Universities

By Monica Issar
We use a real world example for a comprehensive volatility and liquidity assessment to understand the implications of asset allocation shifts in a university's portfolio. Working closely with our Institutional Solutions & Advisory group, an internal team focuses on providing objective analysis and solutions for institutions.

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Seeking direction in a volatile market: Trends in endowments & foundations

Endowments and foundations generated low-double-digit returns in fiscal year 2014 as a result of strong U.S. public equity markets and a shift to alternatives and longer-lived investments. However, as volatility and interest rates increase and global macroeconomic and financial cycles start to normalize, institutional investors will need to adapt to the changing market environment.

In this article, Monica Issar, Global Head, J.P. Morgan Endowments & Foundations Group, and Anthony Werler, Chief Strategist, J.P. Morgan Endowments & Foundations Group, highlight the key trends in nonprofit investment management, as well as areas of opportunity for investors.

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What if we live in a low-return world? Implications for pension funds

By Michael Cembalest

Bond yields remain at or near historic lows around the world, leading to a substantial increase in the value of plan liabilities. Expected asset returns have also been falling, affecting both corporate earnings and the value of public pension liabilities. Even as plans seek to de-risk over time, new mortality tables—taking into account people's longer life spans—are also boosting the value of liabilities. Together, these trends have resulted in a deterioration in funded status experienced by many defined benefit (DB) pensions globally.

In this article, we discuss the long-term trend for growth across asset classes and the implications, as well as potential solutions, for pension funds. Michael Cembalest, Chairman of Market and Investment Strategy, looks forward at global growth, productivity and demographic trends and examines the consequences for long-term interest rates.

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Europe's recovery: From caterpillar to butterfly?

Last year, we laid out our view that structural reforms, much looser monetary policy and a weaker euro had finally set the European economy on the road to recovery. We felt that markets had largely underestimated this improvement, opening up opportunities for investors wishing to increase their exposure to the European equity and bond markets.

This optimism has been borne out by the turnaround in market sentiment towards Europe since the start of 2015. As we approach the second half of the year, it seems a good opportunity to take stock of progress over the past 12 months, gauge whether this improvement is sustainable and assess further opportunities for investors in European assets.
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All That is Gold Does Not Glitter

As written in this week's Thought of the Week, as the gold bear market continues, the precious metal suffered a battering in speculative trading last week, breaking through the $1,100-an-ounce support level. Bullions ($1.7bn to be precise) melted away in a matter of minutes on futures exchanges in the US and Shanghai whilst Europe slept last Sunday, with the sell-off continuing through the week.

The gold price has dropped -42% since its market peak in 2011, after investors flooded into the “safe haven” post financial-crisis. With a positive outlook for global growth, a rapidly strengthening dollar and hawkish statements from the Fed, investors are seeking returns from other asset classes. Perhaps the biggest mover of the market though, came from the People’s Bank of China declaring its current gold holdings were much less than analysts expected. Gold investors can no longer sit in their gilded cages as the price of this asset moves towards record lows.
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A Focus on Partnership

By Monica Issar
In this case study, we emable clients through our global insights and investment platform. Using a real world example, we provide the foundation with access to our robust analytics platform, capital markets knowledge, and local on-the-ground investment expertise across asset classes to help address the challenge of seeking increased sources of return while managing an appropriate spending policy.

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Rollercoaster Ride in Oil

As written in this week's Thought of the Week, the first half of the year has been good to oil producers as WTI rallied 11%, after falling 47% over the course of 2014. However, the rollercoaster ride in oil isn’t over yet. Despite some signs of correction, supply continues to flood the market. Saudi Arabia produced crude oil at a rate of 10.5m barrels per day in June, its highest in recorded history (since 1962).

Last week’s deal with Iran is likely to add yet more fuel to an already oversupplied fire in the coming quarters. Lower oil prices will hurt producers, but, on the whole, the global economy continues to benefit from these lower energy costs. Hold on tight through the turbulent times ahead.
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AGreekment at lastbut challenges remain

By Stephanie Flanders, Vincent Juvyns
This weekend we saw deep divisions come to the fore between the eurozone’s two most important members, France and Germany. We also saw, once again, the challenges of responding to crises within a single currency area that does not have a single unified body for making decisions. None of this bodes well for Europe’s future. But these are long-term concerns that are unlikely to derail the economic recovery or greatly concern investors over the short to medium term.

What investors will focus on is that keeping Greece in the eurozone was almost certainly the best scenario for Europe and financial markets—and it now seems the most likely outcome. Tough challenges remain and, given recent history, no one should be taking anything for granted. But once the dust has settled, market participants should be able to focus on the fundamentals in the eurozone outside of Greece, which accounts for more than 98% of the region’s GDP.

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Update on China A-Shares Market

Deleveraging continues to weigh on the China A-share market despite government measures, including slowdown of new IPO approvals and financial support from PBOC to help stabilize the market.

In general, when companies are involved in the major transactions / price sensitive corporate actions, they might apply for trading suspension. Usually, these might include potential M&A, issuance of stock incentive scheme and new equity fund raising etc. and there’s no hard guideline (such as percent of assets being affected) so these are more subjective calls by the management.

General consideration is that management might not want a major share price movement if they are negotiating a deal and therefore trading suspension might sometimes be up to a couple of months.
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The benefits of multi sector credit investing

By Lisa Coleman

Lisa Coleman, Portfolio Manager, Head of Global Investment Grade Corporate Credit in the U.S., discusses the challenges facing credit managers and the benefits of a multi-sector approach in this video from August 2014.

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Target Date Fund Flexibility

See how TDFs offer the flexibility critical for today's pension savers. Today's pensions market never stands still, and defined contribution funds need to be flexible enough to keep up.

The pensions landscape is evolving, with new government legislation, changes in the behaviour of plan members and ongoing market uncertainty. The 2014 Budget announcement meant pension savers no longer have to buy an annuity at retirement. This is a radical shift that will have a significant impact on defined contribution pension plans. DC plans need to be able to adapt quickly and efficiently to this dramatic change so that members can benefit from the new opportunities that it creates. Target date funds flexibly adjust their asset allocation over time, ensuring members always have an appropriate mix of assets in their portfolios as they move towards retirement.

Our handy guide and short video show how TDFs deliver this flexibility by adapting quickly and efficiently to plan members' needs, market trends, regulatory change and new investment opportunities.

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Emerging Markets Debt Outlook: Will the horse outrun the snake?

By Pierre-Yves Bareau
Last year was challenging for the emerging market asset class, both debt and equities, as investors priced in a withdrawal of liquidity from the US Federal Reserve. True to its Chinese zodiac interpretation as the year of the snake, 2013 turned out to be a slithery, precarious year for the emerging markets:
  • With tapering concerns likely to remain at the forefront of investor thoughts in
  • 2014, we consider the outlook for emerging market debt investors, analysing the key drivers of performance over the coming year
  • Overall, we retain a cautious bias and believe that a tactical allocation to risk assets will be more appropriate for 2014
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Inflation protection for a variety of market environments

Senior portfolio manager Deepa Majmudar analyzes why effective inflation protection requires a flexible approach across a range of inflation-sensitive assets in this video from May 2014. She answers these two questions: 1) why not just invest in TIPs when inflation is looming? And 2) why take a diversified approach to inflation protection?

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The European Banking Union: A three-legged stool

By David Lebovitz, Kerry Craig, Alex Dryden
The impact and depth of the recession due to Europe's sovereign debt crisis would have been mitigated had a banking union been in place; one establishing more stringent supervision and regulation:
  • However, implementation of a banking union is proving challenging, as governments are reluctant to relinquish control over their respective banking systems
  • The current 3-pillar framework is a severely watered down version of the initial proposal.
  • The ECB is due to carry out a quality review of banking assets in the first quarter of 2014, and if the outcome is positive, this review has the potential to restore investor faith in the region’s financial sector
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Saudi Arabia and Long Term Investors

As written in this week's Thought of the Week, in just a few weeks, Saudi Arabia will allow qualified institutional investors to invest directly in its USD570bn equity exchange - an exchange with a market cap larger than that of Russia's MICEX and Poland's WIG. Perhaps surprisingly, the index has not only diversified impressively over the past years, but its 169 constituents are not solely oil-related.

Average daily trading volume of USD2.3bn makes the Tadawul All Share Index the fourth most liquid amongst the emerging markets. Once the exchange opens on 15 June, we would anticipate a further increase in liquidity, which will contribute to market stability and reduce volatility of the country's stocks. But the effects are not just on the technical side: longer term investors will be pleased as Saudi Arabian corporations are expected to improve transparency and governance.
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Building a Global Real Assets Portfolio

By Bernie McNamara
How does one implement the realization—to add private real assets to pension plan allocations? J.P. Morgan's Global Real Assets Omni framework highlights four steps to reliably fund a pension's long-term obligations with consolidated on-boarding, client service, and reporting.

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Greece's Grexit

As written in this week's Thought of the Week, as Greece slips into recession, fears of the country running out of money are mounting. The 11th May Eurogroup meeting was meant to be a key turning point, but progress is slow-moving. Although Greece successfully paid the IMF €750mn last Tuesday, Athens still owes around €25bn through the end of 2015. With ECB support via the Emergency Liquidity Assistance (ELA), a "Grexit" is less likely--even in the event of a Greek default.

However, the ECB will weigh up the political and financial costs of their support and may reconsider if the 20th July repayment to the ECB itself is missed. There are a range of possible scenarios if Greece misses its summer repayments, and while there is less contagion risk than in the past, investors could see volatility spread into other European markets.
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Japan: Is this a hiccup?

By Dr. David Kelly
In response to today's plunge in the Japanese equity market, Dr. David Kelly looks at the severe decline:
  • The sharp decline in the Japanese stock market today should be seen as a healthy correction because ‘Abenomics’ could be positive
  • The Abe administration's high approval rate should accelerate structural reforms, such as deregulations, free trade agreements, and lower corporate taxes
  • There are two hurdles ahead: 1) Bank of Japan’s open market operations, which have failed in keeping the Japanese government bond yields at a lower level and 2) the decision on whether to go ahead and raise the consumption tax to 8% from the current 5% in April 2014
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Accessing Asia: Investing in the infrastructure imperative

By Pulkit Sharma
Our Global Real Assets expert Pulkit Sharma, with Real Asset Strategist Michael Hudgins, discusses the infrastructure opportunity in Developing Asiaone of the world’s fastest growing regional economies, in this video from September 2014.
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1Q15 Earnings season recap: The value of a dollar

We estimate that 2Q 2015 earnings-per-share (EPS) for S&P 500 companies declined by 6.9% on a year-over-year (y/y) basis. Lower oil prices and the stronger U.S. dollar have dragged down earnings growth since 4Q 2014.

Fortunately, because these factors are transitory in nature, downward
revisions to earnings estimates have stabilized and there are high hopes for EPS to rebound by 4Q and in 2016.

Excluding the energy sector, S&P 500 EPS grew by 4.1%, below historical
trends. This is because the stronger dollar resulted in an average EPS decline of 5% for the most dollar-sensitive companies.

While share buybacks have boosted EPS over this market cycle, they have been of secondary importance at best. The primary drivers of earnings have been sales and margin growth.

We continue to favor U.S. equities despite the recent slowdown in EPS growth. Our base case for 2015 still calls for a single-digit return for the S&P 500, which we believe is attractive for most portfolios in this market environment.
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German Bunds

As written in this week's Thought of the Week, it's been a tough week for European fixed income investors as long-dated government bonds across Europe were thoroughly shaken. German 10-year bund yields jumped from 0.1% to over 0.6% in just one week. As shown in the chart, the abrupt sell-off in German bunds has disturbed a long-running rally in European sovereign bond markets.

So what has triggered the rush for the exit? Analysts are touting a series of explanations including reassessment of inflation risk by investors, liquidity concerns as well as bearish comments made by high profile bond investors. Ultimately, with a list this long, it is likely to be a cocktail of several reasons that have caused such a reversal for European fixed income markets.
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Absolute return bond investing: multiple approaches to mitigate risk

By William Eigen
In this video from August 2014, Bill Eigen, head of Absolute Return and Opportunistic Fixed Income, describes his philosophy toward absolute return fixed income investing.
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Riksbank's Lowest Lending Rate

As written in this week's Thought of the Week, Sweden's central bank decided to hold the world's lowest lending rate at its current level. However, to support economic development and inflation, the Riksbank simultaneously reduced the projected path of its policy rate and pledged to purchase an additional SEK 40bn-50bn of government bonds from May through September. After making these asset purchases, it will own up to 15% of all Swedish government debt.

Inflation has begun edging upwards, and could continue increasing particularly due to the Riksbank's downward adjustment in the repo rate path, which includes a potential further rate cut that the February path did not, as seen in the chart. This week brings several releases: Swedish PMI Manufacturing, Industrial Production, and house price data – all of which will give the Riksbank and markets a clearer picture on the efficacy of these monetary policy actions.
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Are tailwinds the new headwinds for bonds?

By William Eigen
Bill Eigen, CIO of Absolute Return and Opportunistic Fixed Income Investing, explains today's fixed income markets in this video from August 2014.
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Deeper dive on infrastructure investing

By Michael Cembalest
This video from May 2014 takes the infrastructure conversation deeper with Michael Cembalest, and discusses what surprised him about this research and where he sees opportunities going forward.
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Sovereign Client experience

By Patrick Thomson
From May 2014: in this video, Patrick Thomson discusses what sovereign clients can expect from their partnership with JPMAM.
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