Search this website. You can use fund codes to locate specific funds

Authors

  • Silvia Dall’Angelo
    For all the resounding announcements, catchy slogans and jokes, today’s Budget amounted to little in practical terms. Chancellor Philip Hammond announced “a Budget for Britain’s future” and reiterated that, after almost a decade of spending cuts, fiscal austerity was “coming to an end”, as also suggested by the Prime Minister during the Tory party conference early this month. Alas, it is not happening now, it is only vaguely defined in practical terms, and it is conditional on a good Brexit deal.
  • Silvia Dall’Angelo
    The trade tariffs – and corresponding retaliatory measures – implemented are so far limited. In total, the value of affected trade now amounts to about $150bn globally, or 0.8% of overall world exports. However, adding up all the measures currently under discussion and assuming impacted countries retaliate commensurately, the amount of targeted trade could quickly rise to more than $1tn, or 6% of global exports. In her latest Ahead of the Curve, Silvia Dall’Angelo, Senior Economist at Hermes Investment Management, argues an escalation of protectionist measures evolving into a trade war could represent the biggest challenge to the world economy.
  • 14/06/2018
    Corporate News
    Silvia Dall’Angelo
    The headline-grabber outcome of the ECB meeting today was the announcement of an end-date for the QE programme: the ECB now anticipates net purchases to grind to a halt at the end of this year. However, the decision was hardly a surprise, following the hints from the ECB’s Chief Economist Peter Praet two weeks ago. Importantly, the ECB made sure to keep in place significant accommodation by strengthening its forward guidance on rates and it retained plenty of flexibility should circumstances change going forward. As largely expected, the ECB announced an extension of QE net purchases at a slower monthly pace of €15bn after September and until the end of the year. According to Draghi, recent “substantial progress” in the inflation adjustment towards the ECB’s 2% target justifies further tapering and the conclusion of the QE programme. Of course, the process is conditional on development in incoming data but it feels like the bar for disappointment is quite high. Other tools remain in place to facilitate the inflation adjustment, most notably a strengthened forward guidance stating the first rate hike will take place in summer 2019 at the earliest. In addition, the stock of ECB holdings – set to hit €2.6tn (22% of GDP) by the end of the year – will remain large, as the reinvestment policy will persist for an indefinite time.
  • 14/06/2018
    Corporate News
    Silvia Dall’Angelo
    “At the end of its two-day meeting, the Fed raised its policy rates by 25bps to a range of 1.75-2.00%, as fully expected by financial markets. This marks another step along a gradual normalisation process that is now well underway: the central bank has raised interest rates seven times since December 2015, while it began reducing its bloated balance sheet in October 2017.” “The general tone of the meeting was upbeat, reflecting recent positive news on the US economy. The statement sounded more confident about the outlook, and economic forecasts were upgraded slightly. In addition, the Fed’s projections for the policy rate (the so-called dot plot) showed a slightly faster pace of tightening this year (four hikes in total according to the median dot), but little change in following years. The terminal rate is still expected to be 3.4% in 2020, implying monetary policy would be somewhat restrictive at that stage. That said, the Fed’s overall strategy was unchanged and the Fed confirmed its gradual approach to monetary policy normalisation.
  • Silvia Dall’Angelo
    The significance of today’s meeting between Trump and Kim is quite dubious. While the display of a bromance between the two leaders is a welcome development, boding well for future negotiations, the agreement they signed contained very little in the way of substance. The suspicion is that today was more of a distraction from serious issues for the global economy – notably concerning trade – still looming in the background. Starting from the encouraging developments, the chemistry between Trump and Kim was positive, suggesting there is an open channel for negotiations between the countries. However, the document the two leaders agreed on delivers only vague assurances and commitments, failing to detail a plan for immediate action. Meanwhile, the elephant in the room is the sustainability of global trade as the US administration has been questioning existing trade policies. Having slapped higher tariffs on imports of steel and aluminium from its closest allies only ten days ago, the US administration is now about to release a list of Chinese imports which will be subject to higher tariffs. These measures, which will target $50bn of Chinese imports at this stage, should be announced by the end of this week and become operative in short order.
  • Silvia Dall’Angelo
    Silvia Dall’Angelo, Senior Economist: “Almost three months after the March general elections, Italy has come back into the spotlight. Negotiations to form a populist government unravelled over the prospects of a euro-sceptic finance minister, sinking the country into political turmoil. Financial markets woke up to the perils of populism in its European expression. “The end-game for the current political stall is likely to be new elections in September or October, following a summer with an unpopular technocratic government acting as caretaker. However, unexpected twists and turns cannot be ruled out, in light of recent surprises, and given the unpredictability of the characters involved. Snap elections taking place as early as late July or a reopening of negotiations for a populist government are also possible evolutions. Whatever the short-term developments, it feels like a new electoral campaign is already under way. Populist parties have escalated their anti-establishment rhetoric, and recent polls suggest that the strategy has paid off, in particular, for the League. “In the coming weeks, financial markets are likely to focus on two main topics: the sustainability of the large public debt (amounting to more than 130% of GDP) amidst promised fiscal largesse, and, more crucially, the question of the euro membership. It is unlikely populist parties will harp on against the single currency (which still enjoys the support by a majority of the public opinion), but the genie is now out of the bottle and financial markets will monitor denomination risk closely.
  • Silvia Dall’Angelo
    Silvia Dall’Angelo, Senior Economist: “The Bank of England has adopted a wait-and-see mode in the face of recent negative data on growth and inflation. “At its previous monetary policy meetings in February and March, the Bank sounded quite hawkish, hinting at a follow through to the November hike to take place as early as in May. However, recent disappointing economic data progressively reduced the chances of a move today, and GDP statistics last week (showing that economic activity almost stalled in Q1) were probably the nail in the coffin of an imminent rate hike. “The opportunity window for further rate hikes may have closed for the Bank of England, as it is now dealing with at least three challenges. Domestically, April surveys on economic activity (the services PMI, notably) pointed to a sluggish rebound from the weather-related weakness in March, suggesting that a more fundamental slowdown might be in place, particularly affecting the consumer. External developments might also play havoc with the outlook as protectionist risks are still brewing in the background.
  • Silvia Dall’Angelo
    Despite the eurozone’s economic recovery, the European Central Bank’s (ECB) overall policy stance has remained accommodative. However, as economic expansion continues, a review of monetary policy tools within the bank’s current framework is required argues Silvia Dall’Angelo, Senior Economist at Hermes Investment Management. In her latest Ahead of the Curve, she assesses the factors influencing the uncertain path to monetary normalisation and discusses how policy may be reshaped. QE & the law of diminishing returns Our analysis suggests QE has had a significant impact on sovereign bond yields, with a reduction of between 70bps to 160bps across jurisdictions. The ECB has reached similar conclusions, indicating unconventional monetary policy measures have compressed long-term yields by about 100bps. In addition, the bank estimates that monetary policy measures introduced between mid-2014 and October 2017 will boost growth and inflation by about 1.9 percentage points between 2016 and 2020. While the bond-buying programme has been effective, cost-benefit considerations suggest it is now an appropriate time to prepare for an exit from QE. Today, the marginal benefit of QE is modest, while its costs, in terms of distortions in financial markets and distributional effects, are high.
  • Silvia Dall’Angelo
    Italian elections are often dismissed as an opera buffa, and this Sunday’s vote is no different. A new electorate system, the political comeback of Silvio Berlusconi and the insurgent Five Star Movement have dominated news flow. But as the eurozone’s third-largest economy prepares to go to the polls, we assess the investment landscape in Italy. Silvia Dall’Angelo, Senior Economist Italy is no stranger to political instability. The country’s political history has been defined by short-lived governments, with 65 administrations taking the helm since World War II, each one lasting for a little more than a year on average. Elections are frequent and post-electoral horse-trading between political parties is common. Between 1945 and 1994, the Christian Democrats took a leading role on the political stage. Thereafter, power swung between the centre-right and centre-left parties. Since December 2016, Italy has been under the caretaker leadership of Paolo Gentiloni, following Matteo Renzi’s resignation as prime minister after his referendum to reform the Senate failed to secure the nation’s approval.
  • Silvia Dall’Angelo
    In the latest Ahead of the Curve, Silvia Dall’Angelo, Senior Economist at Hermes Investment Management, assesses the importance and implications of a flattening yield curve in the US. The US treasury yield curve is a measure economists keep a close eye on. Historically, the curve has been a reliable indicator of future economic activity. Most notably, every recession since World War II has been trailed by a curve inversion, i.e. instances where the spread between 10-year and 2-year yields turned negative. The curve has flattened in the last twelve months, with the spread between the yields narrowing to just 50bps in January. It is therefore possible that the spread could turn negative at some point this year. As such, it is unsurprising that market observers have become nervous about the possibility of a slowdown. But given the current environment of loose monetary policy, to what extent should we trust the US yield as a harbinger of a recession?
  • Silvia Dall’Angelo
    In the latest Ahead of the Curve, Silvia Dall’Angelo, Senior Economist at Hermes Investment Management, assesses whether economic expansion in 2018 will herald the return of elusive inflation. In late 2016, economic expansion entered a new constructive phase, featuring a synchronised upswing in global demand and, in turn, a pick-up in capital investment – an element largely missing from a recovery that had been mainly consumer driven. The current positive mini-cycle was sustained throughout 2017, helping to erode remaining slack in the economy. In most developed economies, there is arguably little slack left, with the eurozone being a notable exception. Yet, inflation has been conspicuously absent. Has the Phillips curve fallen flat? Indeed, across most developed markets inflation has systematically run below official targets and, over the last year, even retreated in places where the output gap has probably turned positive, such as the US. This has led to a renewed debate about the ultimate drivers of inflation and prompted questions about the Phillips curve framework – which lies at the heart of central banks’ models and reaction functions.
  • Silvia Dall’Angelo
    In the latest Ahead of the Curve, Silvia Dall’Angelo, Senior Economist at Hermes Investment Management, analyses the impact of ECB tapering on European markets. At its October meeting, the ECB announced a reduction of the monthly pace of its QE purchasing starting from January next year, officially embarking on the so-called tapering process. The monthly clip of purchases will be halved to €30bn over the first nine months of 2018. This move could mark the closing stage of the ECB QE programme, the so-called APP (Asset Purchase Programme), launched in early 2015.