The September meeting of the European Central Bank (ECB) was a bit of a non-event. What we found most interesting was not the announcements on monetary policy, but on fiscal policy, which is not typically the remit of central banks.
Government bonds shouldn’t be considered a safe haven asset, says Anthony Rayner, manager of Miton’s multi asset fund range.
To say that not all bonds are the same is stating the obvious but to suggest that government bonds shouldn’t be considered a safe haven asset, is a little braver.
In response to a recent US announcement on new tariffs, the Chinese authorities allowed the renminbi to weaken above the symbolic 7, versus the US dollar. In turn, this led the US to label the Chinese as currency manipulators. These exchanges might sound like straightforward tit-for-tat, but we think that they raise the ante, which might mean some investors are too complacent.
Is diversification dead? It’s a fair question. 2018 saw the vast majority of assets fall and, so far, 2019 has seen the vast majority of assets rise. To put some colour on this, Deutsche Bank analyse a broad range of risk-on and risk-off assets and in their sample (excluding currencies), 31 of the 38 assets made losses in local currency terms in 2018, while in the first half of 2019, 37 of the 38 assets made gains - silver being the only loser.
The first half of 2019 was unusual in that it was characterised by a strong rally that encompassed both risk-on and risk-off assets. However, this is very reminiscent of quantitative easing at its height, as the material driver of the cross-asset rally was central banks turning dovish in response to slowing economic growth.
A weak manufacturing survey in Germany has sharpened the focus of markets towards the extent of the global economic slowdown. German manufacturing PMI recently fell to 44.7, the second lowest level since 2009, versus an expected number of 48.
Markets have been a bit jumpy in October and, as ever, investors have looked for a suitable rationale, ranging from trade wars and slowing economic indicators, to higher interest rates.
In this case, the most likely cause was higher US interest rates, which was the reason behind the sell-off at the beginning of the year.
This is the second-longest US business cycle expansion, according to the National Bureau of Economic Research – and its data goes back to the 1850s. If there is no contraction before July 2019, it will be the longest expansion since records began.
Much has been written about the Turkish president’s authoritarian style, paranoid outbursts, attacks on the media, questioning of the independence of the central bank, going for vote-winning growth, weakening political institutions and appointing family members to government positions, but he isn’t new to controversy. And he’s not the only one. Political risk is on the rise globally.