Could investors face a triple-whammy this week from central banks?
“This week will be dominated by three major central bank meetings, and investors asking if the US Federal Reserve will hike rates, if the ECB will end QE and if there will be any action at all from the Bank of Japan? A Fed rate rise is expected due to recent strong economic data, which could still adversely impact emerging markets and other risk assets, despite expectations. The Fed will also issue $68bn of 3,10, and 30-year notes this week and it will be interesting to see how the market mops this up with a hike on the agenda too. We are monitoring the resilience of emerging markets, which are already signalling pressure in Argentina, which has agreed a $50bn deal with the IMF; the Turkish Central Bank is still in dire straits, fighting currency devaluation by hiking rates as often as it can get away with.
Brazil, meanwhile, is still under attack after disruption driven by higher oil prices and trucker strikes. Another Fed hike may see spreads widen further, despite reasonably attractive valuations right now. Could this provide an entry point? The ECB is rumoured to announce tapering, which might also put pressure on risk assets, especially those they have been buying - sovereign debt and corporate debt. However, economic data remain sluggish. Higher yields in Europe would be expected, but this could provide much needed liquidity to European investors, especially those that require short duration assets that have struggled to get positive yields. The Bank of Japan still looks miles off its inflation target, so is likely to keep buying Japanese Government Bonds hand over fist. With yield rises likely to be protracted in both UK and Europe, and manageable, bond funds should still be able to make a positive return in this environment.”
Bryn Jones, Head of Fixed Income
Rathbone Ethical Bond Fund, Rathbone Strategic Bond Fund
For more information, please contact:
Intermediary PR (UK/Europe)
Rathbone Unit Trust Management
020 7399 0256