Q2 2015

Schroders Chief Economist and Strategist Keith Wade explains why his team are in favour of European stocks over US equities, remain neutral on bonds but downgrade their view on bunds and treasuries as we head into the second quarter of 2015.

13 April 2015

Keith Wade

Keith Wade

Chief Economist & Strategist

Economic and asset allocation views covering Q2 2015.

In this Global Market Perspective we look at the impact of recent exchange rate moves and the latest round of the “currency wars,” which have rolled around the world for the past five years.

We also look at the way QE is affecting corporate behaviour by causing companies to favour distributions rather than other forms of expenditure such as investment.

This will have important implications for the way QE affects growth in the world economy.

Stocks and bonds rally after ECB stimulus

Equity and bond markets performed well during the first quarter, primarily driven by the start of quantitative easing (QE) by the European Central Bank (ECB).

Although ECB president Mario Draghi has said that monetary policy alone cannot drive the recovery, the subsequent fall in the euro will go some way to boosting activity and alleviating fears of deflation.

Meanwhile, bond yields fell to record lows across the region with the front end of the German curve dropping below zero. We believe the spillover effects to other bond markets from this will be significant.

US pushes back expectations for interest rate rise

The US Federal Reserve did not ease monetary policy, but a dovish statement pushed expectations for the first rate rise further out.

Meanwhile, the quarter saw easing by other central banks, with 21 authorities loosening monetary policy.

Low inflation - a consequence of lower energy prices - was key in allowing this move, which also pushed bond yields lower around the globe.

Schroders backs European equities over US stocks

In terms of our own strategy we expect strong liquidity and modest improvements in growth to continue to support equities where we remain positive despite the increase in valuations.

However, we have rotated away from the US toward Europe ex.UK on the back of the changes in monetary policy.

We remain neutral on bonds, but have downgraded Bunds and Treasuries.

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