Poor economic and fiscal policies are, and will likely be, a recurring theme in Italian politics. However, from a trade perspective, we see Italy to remain a good carry/spread trade for at least the next twelve months against a backdrop of improving GDP growth in 2018 and 2019.
A broad-based synchronized recovery continues to gain traction. Following the strongest year of global growth since 2010 (estimated at 3%) the consensus forecast for the current year looks to be even rosier.
There was a sharp rise in US Treasury (UST) yields in January on the back of positive macro news, steady rise in oil prices and speculation that central banks in developed markets will start winding back on stimulus measures.
Over the past 15 years Australian house prices have been on an incredible run, resulting in Australian households becoming some of the most indebted in the world. So what is the economic cost of Australia’s sky high property prices and what could it mean for property prices in 2018?
A broad-based synchronised recovery continues to gain traction. Following the strongest year of global growth since 2010 (estimated at 3%) the consensus forecast for the current year looks to be even rosier.
As widely expected, the US Federal Reserve (Fed) raised interest rates by 25bps in December, its third rate hike this year. It also raised its GDP forecast for 2018.
Our Senior Portfolio Manager for Emerging Markets in London forecasts that in 2018, this asset class could well match 2017’s achievement.
For 2018 and beyond, we see a story of central bank policy normalization and foresee the global economy growing in a similar fashion to how it did in 2017: low growth coupled with comparatively low inflation data.
We see the key investment themes to drive performance in Global Credit in 2018 to be similar to last year. We have developed our investment themes: Long US High Yield, Long Chinese Tier1 SOEs, Long European Hybrids, Long European Financials, Long Rising Stars.
We expect the economic backdrop for Asian credits to remain constructive in 2018, but remain cognizant of several risks including rising interest rates, robust supply, unexpected weakness in China, geopolitical developments and cross-asset volatility.
The global recovery is expected to continue, albeit at a more moderate pace. Meanwhile, we foresee policy normalisation and an acceleration of inflation in Asia.
Low global inflation and, until recently, a strong Kiwi dollar have kept New Zealand’s inflation rate low over many years, however things may be about to change.
US Treasury (UST) yields declined during the month. The nomination of Jerome Powell as the next US Federal Reserve (Fed) chairman overshadowed stronger US economic data, but was subsequently offset by increased geopolitical risks in the Middle East and a setback to US tax reform.
The imminent party election will be crucial in determining this major Emerging Market’s future.
From an economic perspective Canada and Australia share some common features, but we would caution that the performance of the two economies is substantially different than generalisations would suggest.
Even as the situation in Germany to form a new government is difficult, financial markets have reacted very mildly to the uncertainties.
We think it is unlikely that May will be replaced within her own party. This is because there is a lack of an heir-apparent, and the Conservative Party would be extremely reluctant to even slightly increase the risk of another election.
US Treasuries (USTs) fell in October, as prospects of higher growth and inflation increased after the US Senate approved the Republican-backed budget for 2018.
Just as politics in other developed countries have recently taken on a more populist and/or anti-capitalist tone, so too has New Zealand’s.
To help bridge the gap between the perceived unreliability of Chinese statistics and the importance of analysing the world’s second largest economy, we look for measures which have less potential to be manipulated.
Most bond index providers have started to recognize China’s financial market liberalisation and reform efforts. We think it is only a question of time before they are included in the main benchmark indices.
A separate allocation to Asia IG offers European investors a way to mitigate risk within their EMD exposure.
US Treasuries declined in September, prompted by the possibility of a rate hike by the Federal Reserve in December and Trump's tax reform bill being passed by Congress.
Our senior fixed income portfolio manager in Singapore explains why he is bullish on ASEAN currencies for the long-term.
Despite geopolitical risks and less dovish central banks, the Global Investment Committee remains moderately optimistic about the global economy and equity markets, while being cautious on global bonds.
Despite the uncertainty surrounding the time it will take before the formation of a new government, we do not think there is risk of major policy change in Germany. The election outcome, however, will likely weigh on the aspirations of France’s Macron for deeper Eurozone integration.
The US Treasury (UST) market grinded higher in August. Rising tensions in the Korean peninsula and a lack of direction from the US Federal Reserve and the European Central Bank on the outlook for monetary policy put pressure on US Treasury yields.
Our London-based Global Credit Portfolio Manager lays out the scenarios of the upcoming German election and its ramifications for select German credits.
US Treasury (UST) yields ended largely unchanged in July following soft US inflation print, dovish comments from the Federal Reserve and expectations of an autumn policy shift from the European Central Bank.
China’s dual goals of deleveraging and maintaining strong growth may not necessarily conflict, but they certainly pose a delicate balancing act for the government.
The rapid development of the Asia Credit markets provides new opportunities to improve the risk and return profile for investors.
US Treasury (UST) yields were range-bound for the most part of June, before surging in the last few days of the month. The US Federal Reserve (Fed) raised interest rates by 25 basis points (bps), despite soft inflation data.
The Global Investment Committee remains moderately optimistic about the global economy and equity markets, while being cautious on global bonds.
Changing perception of ESG’s performance impact: An active ESG approach is now regarded as a catalyst for outperformance.
Better-than-expected US non-farm payroll figures and a more favourable FOMC statement were offset by political uncertainties in Washington. FBI director James Comey's firing and investigations into possible ties between Trump's election campaign and Russia increased concerns of a set-back in the president's economic agenda.
The European Central Bank (ECB) has taken its first step towards reducing its stimulus programme by omitting the mention of "lower levels" for interest rates in its forward guidance, even as ECB President Mario Draghi denied that there was any discussion of tapering in the latest policy session.
Asia Credit is significant enough as an asset class to be considered separately, and its high grade segment could be a relative safe haven if EMD flows reverse.
On 24 May 2017, Moody’s downgraded China’s sovereign credit rating to A1 from Aa3 citing expectations that China’s “financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows”.
On 19 May 2017, S&P upgraded Indonesia’ sovereign rating to BBB- with a stable outlook from BB+ with a positive outlook.
While highly unlikely, we examine the potential impact on Japan of a major crisis on the Korean Peninsula.
10-year US Treasury (UST) yields ended the month at 2.28%, about 11 basis points (bps) lower compared to end-March levels. Mixed economic data and rising geopolitical tensions drove sentiment over the month.
We believe that Abenomics is working, however we feel that its success cannot be determined by viewing government policy frameworks in isolation.
Steve Williams, the Portfolio Manager responsible for Green Bonds in Nikko AM’s London office, examines how this burgeoning asset class is likely to develop into a mainstream part of global fixed income portfolios.
“Any major crisis in the Northeast Asian region, especially one involving a crisis within Japan’s borders, is likely to be handled very aggressively by the Bank of Japan (BOJ), with it bending the rule-book as much as the Fed did during the Global Financial Crisis or as the ECB has done in the past five years.”
John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com
“We all have heard of the term 'interest rate repression' for how central banks have kept rates at ultra-low levels, but this has only been successfully maintained due to what I call 'inflation repression.'”
John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com
Our Tokyo Fixed Income team explains its view on the Japanese labor market and its effect on consumer inflation and Bank of Japan policy.
US Treasury (UST) yields rose in the first half of the month buoyed by hawkish comments from the Federal Reserve (Fed), a solid US jobs report and possible scale back of quantitative easing (QE) by the European Central Bank (ECB).
As commodity prices have risen, the Australian economy is set to benefit from these continuing gains.
The Global Investment Committee remains optimistic about global economy and equity markets despite their recent strong equity rallies and increased political risks.
US Treasury (UST) yields traded in a tight range in February. Risk assets rallied and UST yields rose in the first half of the month, on the back of the prospect of tax cuts and a Dodd-Frank overhaul in the US.
Asia’s Credit market has come a long way since the Asian Financial Crisis of 1998, having evolved into a large, deep and liquid market.
With President Trump announcing that he will be releasing his tax plans in the coming weeks, we have shifted to a more cautious position on US duration. The risk is that President Trump announces a sizeable stimulus package, with the backing of the broad Republican base.
US Treasury (UST) yields ended higher in January as weaker-than-expected payroll data led markets to moderate their forecasts for Federal Reserve (Fed) rate hikes in 2017.
Credit markets are expected to have another positive year. We expect economic growth in Asia to be stable but see some potential downside risks.
Global economic, credit and interest rate cycles are becoming desynchronised. In this paper, we introduce Nikko AM’s first generation default probability model for corporates.
In-depth report: Economic growth in Asia is expected to remain broadly stable in 2017. While there will be greater external uncertainties as well as country-specific challenges, Asian economies are, on balance, better equipped to deal with external pressures compared to a few years back.
Our Senior Portfolio Manager for Emerging Market Debt in London forecasts that in 2017, this asset class could well match 2016’s achievement.
As rates could rise further in 2017, we expect that a broad range of investment themes will help generate enough alpha performance to offset the rates impact.
USTs weakened further in December, as caution prevailed following the November sell-off. As widely expected, the US Federal Reserve (Fed) raised interest rates by 25 basis points (bps).
Nikko AM's Global Investment Committee's 2017 Outlook — More Economic and Equity Reflation, Despite Less Dovish Central Banks
Our China Fixed Income expert in Singapore expounds upon how the Trump election is forcing China into taking specific economic policies.
UST yields surged in the month as Trump's election victory prompted expectations of a significant fiscal package and possible upside inflation risk under the new administration.
Following the US election, we have seen bond rates continuing to increase, a stronger US dollar, firmer commodity prices, and a US stock market at all-time highs. Is optimism around the US President-elect’s fiscal expansion masking the true deflationary picture?
We expect Italian assets to underperform until it becomes clear who will be able to form and lead a new government. Nevertheless the outcome of the referendum was already priced into financial markets.
October was another difficult month for Global credit markets, in particular for Investment Grade bonds. By contrast, more risky High Yield bonds outperformed.
Neither Brexit nor Trump’s win was an accident – ‘the people’, in particular the working and middle classes, are purposefully and deliberately giving the political elites a thump on the nose.
USTs ended lower in October. Better US economic data and a hawkish statement from the Federal Open Market Committee (FOMC) bolstered expectations of a December interest rate hike.
USTs ended September mixed. While the Federal Reserve left interest rates unchanged and the Bank of Japan reinforced commitment to monetary easing, the ECB's lack of new stimulus disappointed the market.
It has continued to be a wild roller-coaster ride for investors, and unfortunately, it is not likely to be very calm for the foreseeable future. Investors must keep a keen eye on geopolitical risk and be ready to act if such appear to accelerate into a situation that could significantly impact markets.
QE policies have had a material impact on bond yields and valuations. We believe that the evolution of these policies will be more important than fundamentals in indicating when bonds can break the cycle of ever-declining yields.
Central bank policy from the US, Japan and Europe are strongly affecting the current global fixed income markets. New Zealand and Canadian economies also face continued pressure.
USTs ended marginally lower in August as the market adjusted to the possibility of a Fed rate hike, buoyed by sustained resilience in the labour market.
Many market commentators have been speculating that we are finally coming to the end of the bond rally that has endured for the past 35 years. It's worth noting that this is nothing new—we have heard similar suggestions many times before over recent years.
In developed markets, global bonds have benefited from recent flows out of Japan into positive-yielding markets. The New Zealand and Canadian economies face continued pressure and a September US rate rise is now looking more unlikely.
US Treasury (UST) yields ended July mixed: yields of shorter maturities climbed, whilse those of longer maturities fell.
The major consideration for markets in June was the Brexit vote in the UK. Although we are sceptical about the most pessimistic scenarios for the UK, there will be some negative impact on growth.
US Treasury (UST) yields gained in a volatile mon across asset classes. The US Federal Reserve (Fed) scaled back projections for raising interest rates, while the UK voted to leave the EU by a 4% margin, surprising markets.
Emerging Market reforms won't stop or pause with the current market recovery.
Following our analysis of the recent UK vote, our Emerging Market debt team in London discusses Brexit's potential ramifications for this asset class.
The immediate fallout from the Brexit win has been a strong flight to safety. US Treasuries rallied with the UST 10-year yield down to 1.44%, lower by 31 basis points (bps) on 27 June 2016.
Uncertainty after Brexit vote, but the correction in valuations and market volatility could provide buying opportunities in some fundamentally strong credits.
Although it is still too early to determine the full implications of Brexit over the longer term, in the short term, we can expect significant market volatility as uncertainty prevails, but this does not mean that investors should panic.
US Treasury yields remained largely unchanged in May. The impact of a disappointing US payroll figure was offset by the release of the US Federal Reserve’s April meeting minutes, which revealed that most policymakers favoured a rate hike in June should the US economy continue to improve.
Continued easy monetary policy in Europe and Japan will be supportive for global interest rates, but the case for further limited rate hikes in the US remains in place for 2016.
Our oil experts in London and New York update their bullish views in January with new facts, while retaining their positive intermediate-term view on oil prices.
Our global rates and currencies strategist in Australia lays out his dovish Fed scenario as an alternative to our house view. In it, he expects the Fed to wait until September or later to raise rates, and states his case that the Fed’s actions do not affect US bond yields.
Our Chief Global Strategist explains the reasons why there is too much unjustified pessimism about Abenomics.
Our Asian currency expert discusses the potential ramifications of the increasing CNY-orientation for Asian currencies.
What is more important for credit spreads in the current environment: the fundamentals or central bank actions? Our research suggests that since 2010 the answer has been central banks and, in particular, the US Federal Reserve.
For the next 12 months, we are quite positive on performance prospect for global credit, singling out five investment themes.
Nikko Asset Management's Global Investment Committee met on March 29th and updated our intermediate-term house view on the global economic backdrop, central bank policies, financial markets and investment strategy advice.
We expect June and December Fed hikes, but only mild further easing ahead for the BOJ and ECB. Meanwhile, we expect oil prices to creep higher through 2016 despite the stronger USD due to relatively firm economic developments in China and the G-3.
We expect that global equity and bond investing will be positive for Yen based investors due to Yen weakness, but for USD based investors, we are taking only a neutral stance on global equities due to a cautious forecast for US equities, whereas we are positive on Asia-Pac ex Japan, Japan and Europe. Meanwhile, we are moderately negative on bonds in each region when measured in USD terms, so we underweight them.
While a recession in the US is not our base scenario, the impact of such an event on credit exposure is worthy of consideration. In our historical analysis we've found that the driver of past recessions can provide important insight into which credit maturities are most attractive.
US monetary policy grows less independent as 2016 unfolds and risks to global growth abound in a rebalancing China, a deflationary struggle in Europe and whispers of a Brexit.
5-year and 10-year US Treasuries (USTs) yields ended the month lower, at 1.21% and 1.74% respectively. Cautious sentiment around falling oil prices and the prospect of a delay in US Federal Reserve interest rate increases supported US Treasuries (USTs) over the month.
Our Global Credit staff in London detail their rationale behind concentrating on service sector exposure globally.
In 2015, the US Federal Reserve began the process of interest rate normalisation. Short-term bonds underperformed long duration bonds, on expectations of the ongoing US economic recovery remaining weak, and US inflation being anchored at current low levels.
2-year and 10-year US Treasuries (USTs) yields ended the month lower, at 0.78% and 1.92%. Concerns that China could be embarking on a devaluation path curbed investors' risk appetite and supported demand safe-haven assets.