Over the next few years, financial markets could be set for a series of “Rude Awakenings,” as we forecasted in our latest Secular Outlook. The global economy is transitioning out of a post-crisis period characterized by remarkable stability, and the changes ahead could be jarring for investors.
U.S. tariffs and trade tensions have dominated headlines over the past few months. With certain tariffs aimed squarely at China, Beijing quickly responded with tariffs of its own on U.S. goods in early July. What do the tariffs mean for investors in Chinese and other Asian technology and consumer credits?
In this issue, Research Affiliates discusses positioning for a potential inflation shock and offers insight into its collaboration with PIMCO to bring forth innovative solutions for investors.
Investors may be concerned that Fed rate hikes may be bad for bondholders but it’s important to remember the fundamental benefits that bonds may bring to a portfolio no matter which way rates move – capital preservation and appreciation, income, and diversification.
We believe the bond market is uniquely suited to both benefit from and provide finance for ESG-related (environmental, social and governance) efforts.
The recent OPEC meetings and press conference have given oil investors greater clarity about the cartel’s intentions and reaction function: OPEC, along with Russia and other partners, agreed to boost aggregate output by 700,000–1 million barrels per day.
External pressures are mounting, but Canada’s biggest wake-up call may come from within.
With the economy in the later stages of its post-crisis recovery, we believe investors should be cautious and selective on corporate credit. Within the high yield sector, this caution may warrant a move up in quality toward the higher end of the spectrum: BB rated bonds.
Forecasting currency performance is like predicting the outcome of a horse race. Currencies move up the field and then fall back depending on their respective country conditions. And once in a great while, a very strong contender dominates the field – much like the winner of the Triple Crown.
How can investors navigate volatility arising from late-cycle fiscal stimulus?
PIMCO’s Global Advisory Board discusses the outlook for major economies and geopolitical developments.
The Federal Reserve’s decision today to hike its policy rate by 25 basis points (bps) to a range of 1.75% to 2.0% was widely expected. The Federal Open Market Committee (FOMC) also signaled growing consensus that the robust pace of economic activity warrants two more rate hikes this year, for a total of four in 2018.
One of the potential rude awakenings that we advised investors to prepare for in our recent Secular Outlook is a surprising surge of productivity growth over the next several years.
Despite long-running international concerns about China’s property “bubble,” the market has proven quite resilient. The Chinese government has instituted various austerity measures to cool the market, but buoyant demand for property has helped avoid any serious downturn.
Consistent with our thinking back in January 2018, trade has dominated the policy agenda in Washington and cast a pall over certain segments of the market. We continue to maintain that President Trump should be taken at his word regarding trade policy...
In a reversal from last year, the U.S. dollar has strengthened against other major currencies in 2018, reflecting rising U.S. rates, expectations of more Federal Reserve rate hikes and recent sluggish economic data outside the U.S.
A segment of the credit market many investors may overlook, preferred securities are one of PIMCO’s highest-conviction credit views today.
We expect a more difficult market environment will surprise many investors as the post-crisis era ends. It’s time to position for the opportunities ahead.
For income investors, rising interest rates have created both a challenging market environment and a better outlook for yield.
We believe the news is evidence of a broader shift toward simpler corporate structures in the midstream energy sector – a trend that supports our investment approach and our constructive view of the sector.
It may be time for U.S. investors to challenge their home-country equity biases.
For years after the financial crisis, many investors were resigned to earning next to nothing on their cash and short duration investments. Rising interest rates, however, have brought a new reality: The front end of the fixed income market looks attractive for the first time in almost a decade.
We are positioning our ultra-short and short-term bond portfolios with the goal of not only navigating rising rates but also ultimately benefiting from them.
We believe that active engagement with issuers can help reduce credit risk, unlock value for investors, and influence positive impact on economies, societies and the environment.
U.S. core Consumer Price Index (CPI) inflation was softer than consensus expectations in April, and the year-over-year rate remained stable at 2.1%. We see a couple of reasons for that, and continue to expect core CPI inflation to accelerate further (to 2.3%–2.4%) before settling back to 2.2% by year-end.
The U.S. decision to pull out of the Iran nuclear deal has potentially profound implications for the oil market. While withdrawal from the Joint Comprehensive Plan of Action (JCPOA) creates many known unknowns, any reduction in Iranian supply will likely exacerbate market deficits, suggesting upward pressure on pricing.
A review of last month’s market-moving events across countries and asset classes.
We believe the myriad inefficiencies in emerging market fixed income play to the strengths of active management.
How sensitive is the U.S. economy to rising oil prices? A popular view is that growing U.S. energy output has largely immunized the economy against the adverse effects of pricier oil.
With little in the recent economic data to warrant a change in the U.S. outlook and bond markets that were largely aligned with the Federal Reserve’s 2018 rate hike projections, today’s statement from the FOMC (Federal Open Market Committee) needed only to reaffirm the messages conveyed at the March meeting.
The 10-year U.S. Treasury yield broke 3% on 24 April to much fanfare. Stock markets tumbled, and with the media blitz that followed, many investors may have started to see “3%” in their dreams.
Global central bankers, finance ministers and representatives from the private sector and civic groups gathered in Washington recently for the spring meetings of the IMF (International Monetary Fund)/World Bank Group. With trade policy, geopolitics and emerging markets currently top-of-mind for many investors, the meetings were especially relevant this year.
We believe The New Neutral of lower-for-longer equilibrium policy rates remains a valid anchor over the medium term. The key drivers of low equilibrium rates – including demographic trends and the high level of leverage in the global economy – have not substantially changed since the financial crisis.
When the People’s Bank of China (PBOC) cut its reserve requirement rate (RRR) by 1% for China’s banks recently, the central bank said its “prudent and neutral policy stance” remained in place, since the overall quantity of excess reserves would not change much. Indeed, the PBOC will maintain a relatively high reserve requirement for China’s banks.
The Bank of England has had to navigate a difficult set of circumstances in its attempts to raise interest rates. As far back as 2014, Governor Mark Carney suggested that rate rises could come “sooner than markets currently expect,” only for those aspirations to be dashed. Indeed, the next move in interest rates turned out to be a rate cut, in the aftermath of the June 2016 Brexit vote.
After a decade of relying on investment and exports for growth, China’s effort to rebalance its economy toward consumer-led growth is well underway and should continue to build steam in 2018.
In a storm, you want to be able to reach higher ground. Recent market volatility – sparked by concerns over interest rates, inflation, global trade, the tech sector and more – has many investors shifting toward more defensive portfolio positions.
The global economic expansion has already entered its 10th year. With bumpy and brittle growth having given way to a robust and globally synchronized conjuncture, an aging cycle has suddenly become much more cyclical.
Many investors who thought worrying about inflation was “so 20th century” may now be seeing reasons to reconsider: The business cycle in the U.S. is mature, output gaps have closed, trade frictions are mounting and populism is on the rise.
The acceleration in U.S. core Consumer Price Index (CPI) inflation in March was in line with expectations, and likely a welcome development for Federal Reserve officials after a surprising string of soft inflation prints last year.
The minutes of the March 2018 Federal Open Market Committee (FOMC) meeting affirmed our outlook that the Fed will likely continue to gradually and methodically increase interest rates and that the bar is relatively high for policymakers to change the current plan for two or three more hikes in 2018.
Consistent with our view last month that the Trump administration’s more significant (and market-moving) trade actions had yet to come, the recent announcement of tariffs on Chinese products related to the Section 301 intellectual property investigation has roiled markets and increased uncertainty over the possibility of a trade war.
Recent tax reform has increased the dialogue around state preference municipal portfolios, and some municipal investors are inquiring whether state-specific or state preference portfolios are a good fit in the current environment.
Many of us who grew up as children of children of the Great Depression may recall our parents imploring us to “Stop throwing good money after bad!” in any number of situations, even if we didn’t always heed their wisdom.
We believe that ESG investing is not only about partnering with issuers who already demonstrate a deeply integrated approach to ESG, but also about engaging with those who wish to move forward with their ESG initiatives. We believe that successful engagement can reduce credit risk, unlock value and influence positive impact.
We maintain a neutral outlook for U.S. commercial real estate prices overall this year, following a 3% to 5% decline from their 2015 peak.
We believe that ESG investing is not only about partnering with issuers who already demonstrate a deeply integrated approach to ESG, but also about engaging with those who wish to move forward with their ESG initiatives.
Stormy weather was abundant in March: spring snowstorms in the Northeast of the U.S., a trade tussle with China that could escalate into a trade war, hawkish personnel changes in the White House, a Powell-led Federal Reserve that expects to overshoot the neutral policy rate, and the worst week for U.S. equities since January 2016.
The global expansion is either nearing its demand-driven peak or in the early stages of a supply-driven renaissance. We share our assessment and portfolio positioning.
