19 to 25 September: Shot in the Arm

Bonds and equities again moved together last week – this time pushing higher, with yield curves flattening. Given the FED will now not raise rates until at least December, any central bank action over the next 11 weeks will be further easing (possibly including BOJ and BOE rate cuts). We think the market could therefore benefit from a tail wind until the US election on the 8th November. More precisely, we believe there is a bias towards continued yield compression and emerging markets inflows.

Longer term, the picture is much more uncertain. Wednesday’s FED meeting revealed major divisions amongst the committee, whilst the changes to BOJ strategy (announced the same day) highlighted our long running theme of monetary policy losing credibility. Further innovation risks losing faith in currency and creating a “stagflation” type environment.

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