Central bank groupthink across the world means that although inflation targeting has largely worked over the past three decades, effectiveness has waned and become marginal.
The RBA may push rates to further historic lows in an attempt to create the macroeconomic conditions that will provide a lift in inflation. This leaves it vulnerable to a further deterioration of the global backdrop, where softening tailwinds, intensifying headwinds, and the return of trade uncertainties may result in a drag on growth.
While there is considerable uncertainty about the global cycle, we expect the next big opportunity will be to position for a US downturn, however not yet. In this environment, our work is focused on minor adjustments, to be ready for more significant change as markets shift.
Analysis indicates that while house price decline may impact the economy, of more pressing concern is that no industry sector looks ready to step into that void, as the housing sector itself did when mining investment receded. Written by Simon Stevenson (Deputy Head of Multi-Asset), Kellie Wood (Portfolio Manager - Fixed Income) and Sebastian Mullins (Portfolio Manager - Multi-Asset).
Using the full breadth of markets across credit, rates and currencies provides many opportunities, but the key in this environment is determining the amount of risk, and where and when to take that risk.
Investors are voicing concerns around the BBB market in the US, and the possibility of “negative migration” risk. This is where, under stress, a large portion of this market could be re-categorised to sub-investment grade, potentially causing a mass sell off.
Headlines on consumer delinquency have taken a negative spin. Recent auto delinquency data is at near-peak levels despite today’s low unemployment. But it’s important to examine exactly what is being reported as “delinquency” when reviewing the data. By Michelle Russell-Dowe, Head of Securitised Credit, US Fixed Income and Anthony Breaks, CFA, Portfolio Manager
Although the Fed has softened its stance and the labour market remains tight, the outlook for a strong US rebound in growth remains muted. Coupled with European elections nearing and anticipated slower growth in China, the outlook is neutral and portfolio decisions continue to prepare for what may come next.