On 20 March, investors awoke to news Swiss authorities had used emergency measures to push through a hastily arranged merger of Credit Suisse and UBS. Following two recent bank failures in the United States, the announcement raised questions over the health of European banks and the broader economy.
Today, the Federal Reserve raised the Fed funds target range by 25 basis points (bps), to 4.75%–5.00%, as expected, and signaled it expects at least another 25 bps of additional rate hikes will be necessary to bring down inflation. This announcement and the recent turmoil in the banking sector increase our confidence that the Fed is nearly done tightening.
No. We continue to think investors should tightly manage risk by keeping equity allocations and bond duration in line with broad policy targets and resist the temptation to time the market.
No, while the recent outperformance and positivity surrounding Eurozone equities was justified by shifts in the macroeconomic landscape, we do not have confidence that outperformance will continue, given the challenges still facing the region. Therefore, we suggest investors keep Eurozone equity allocations in line with policy weights.
In this edition of VantagePoint, we explore the improvement in economic conditions, prospects for recession in the United States and Europe, the degree to which markets are pricing in reasonable economic and earnings prospects, and sensible asset allocation considerations.
Calendar year 2022 witnessed multi-decade record inflation and central banks responded with rapidly tightening monetary policy. Rising rates saw the correlation between bonds and equities turn positive, contributing to large declines across most asset classes. Funds flows diverted away from growth and momentum strategies, and yield curves flattened with the ten-year/two-year yield curve becoming inverted in most developed markets, signaling economic uncertainty ahead.
In this edition of VantagePoint, we review three big questions that are central to the path of the markets: 1) Will the US Fed pivot away from aggressive tightening?; 2) Will China move away from its zero-COVID policy?; and 3) Will Europe successfully manage its transition away from Russian energy imports?
The European Central Bank raised its policy rates by 50 basis points, including its deposit rate, which is now 0%, to address high inflation levels in the bloc.
The ongoing war in Ukraine has exerted a material impact on both global economies and markets, primarily via a steep increase in commodity prices, especially energy. Europe has been particularly affected due to its geographical proximity and the resultant dependence of many of its nations on Russian fossil fuels. This chart book reviews the hit to European growth associated with the war in Ukraine.
Global inflation has been higher and more persistent than most economists anticipated. In this edition of VantagePoint, we evaluate current inflationary and deflationary crosscurrents and the implications for investors. We continue to believe that predicting the future path of inflation is difficult to do well and that the best protection is a well-constructed diversified portfolio designed to meet the asset owner’s risk tolerance, portfolio objectives, and spending needs.