Current Perspectives

 

The US Federal Reserve’s Brakes Do Work

Over the past three decades, the Federal Reserve has raised the official short-term rate when the US economy has shown signs of overheating. When the Fed moves, savvy bond investors also move—toward opportunity.

Why Care About Commodity Stocks?

Commodities haven’t been kind to investors in recent years. But we believe that shifting the frame of reference away from underlying price trends of metals and raw materials can reveal surprising opportunities in select commodity stocks.

Bank Hybrids Bloom Globally—with Subtle Variations

The market for financial hybrid securities is growing as banks worldwide implement stringent new capital rules. But not all hybrids are alike, so investors can’t afford to take a one-size-fits-all approach.

Economic Perspectives

 

Market Turbulence and US Economic Outlook

US :: The sharp and sudden sell-off in equity markets worldwide raises growth fears once again. But the economic foundation in the US today is much stronger and broader than it was during prior equity sell-offs. This leads us to conclude that the recovery is on a sustainable path—and could even tolerate the normalization of official interest rates.

Emerging-Market Woes Unlikely to Derail Euro-Area Recovery

Europe :: Although the global backdrop has darkened, we expect the euro-area recovery to remain on track, helped by low oil prices and supportive monetary conditions. The ECB is unlikely to provide fresh stimulus at this stage. But persistent downward pressure on inflation should keep the central bank in dovish mode and could make additional asset purchases after September 2016 a real possibility.

Asia’s Slowing Potential Growth Implies Narrower Output Gap

Asia :: Many Asian economies have seen their growth rates slow toward, or below, their potential growth rates in recent years. Moreover, the potential growth rates themselves have also slowed owing to changes in demographics, investment trends and productivity growth. As a result, investors should be braced for surprises, for instance, in monetary policy or the relative value of currencies in the region.

Latin America: Exchange Rates and Inflation—Again

Latin America :: Falling commodity prices, subdued economic growth and the prospect of higher US interest rates have pressured currencies throughout emerging markets. Persistent currency weakness is bound to feed through to domestic prices eventually. That will push central banks toward tighter monetary policy.

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