 "Expect wobbles close to Fed's rate decision in Dec: Michael Every")
With the US Federal Reserve and the Bank of Japan holding rates steady, Hong Kong-based Michael Every, head of financial markets research for Asia-Pacific at Rabobank International, tells Puneet Wadhwa that among emerging markets India still has a good fundamental story, and should outperform. Edited excerpts:
What is your reading of the statements coming from the US Federal Reserve (US Fed) and Bank of Japan (BoJ)?
The US Fed is still huffing and puffing, but unwilling to blow anything down. We may get one hike in December, but clearly we are seeing less and less confidence in their ability to normalise much. The BoJ was potentially far more significant than the market is reading it. We may be a large psychological step towards “helicopter money” – a landing-pad may have been built with the BoJ decision, at least with the promise to do more and directly control the yield curve too.
A loose US Fed is manna for all financial assets, even if it is a fool’s dream that they are selling us. Enjoy the rise for now, but don’t confuse equity valuations for positive fundamentals! Given slow global growth and no inflation, bond yields are likely to continue a trend decline in most places, even if in Japan the drift below zero may have been halted by the BoJ’s pledge to control the curve.
Do you think the markets are over-fearing the next US Fed hike?
While central banks are throwing a wall of liquidity at us, everything will do well. However, as we approach a December rate hike, expect another bout of equity market wobbles.
How long do you see global central banks continue with their easy money policies?
They will carry on with it until there is a political backlash, directly or indirectly. You can see this starting to happen already in many countries, where either voters or politicians are growing frustrated at the lack of results/uninclusive growth that central banks are presiding over.
It’s been a fun ride low in yields and it is likely to go on longer. But when it ends, it will end very hard and very fast.
The markets seem to have taken concerns regarding Brexit (Britain’s exit of the European Union) in their stride. Is the worst yet to come?
We won’t know the results of Brexit until we know what Brexit really means. Clearly it has been a painless “phony war” so far. That’s unlikely to last too much longer. China is far more worrying from a global growth perspective: The housing and debt-bubbles there are not likely to end well, and the longer they are allowed to grow, the more so.
What is the outlook for flows to emerging markets (EMs) over the next six to 12 months?
EMs will be swept along by the global backdrop: Central banks will remain broadly supportive, but potential growth and political risk shocks will act in the other direction. India still has a good fundamental story in many respects, and should outperform. However, that is relative, so a 20 per cent fall elsewhere might mean a 15 per cent fall in India, as a hypothetical example.
What is your outlook for crude oil and precious metals?
Though we don’t forecast either of them in detail, for oil, we expect the “lower for longer” backdrop to prevail for now.
What is your reading of the statements coming from the US Federal Reserve (US Fed) and Bank of Japan (BoJ)?
The US Fed is still huffing and puffing, but unwilling to blow anything down. We may get one hike in December, but clearly we are seeing less and less confidence in their ability to normalise much. The BoJ was potentially far more significant than the market is reading it. We may be a large psychological step towards “helicopter money” – a landing-pad may have been built with the BoJ decision, at least with the promise to do more and directly control the yield curve too.
Also Read: Central banks fire up markets. How long will the rally last?
How are global bond markets likely to play out over the next three – six months, given these decisions?A loose US Fed is manna for all financial assets, even if it is a fool’s dream that they are selling us. Enjoy the rise for now, but don’t confuse equity valuations for positive fundamentals! Given slow global growth and no inflation, bond yields are likely to continue a trend decline in most places, even if in Japan the drift below zero may have been halted by the BoJ’s pledge to control the curve.
Do you think the markets are over-fearing the next US Fed hike?
While central banks are throwing a wall of liquidity at us, everything will do well. However, as we approach a December rate hike, expect another bout of equity market wobbles.
How long do you see global central banks continue with their easy money policies?
They will carry on with it until there is a political backlash, directly or indirectly. You can see this starting to happen already in many countries, where either voters or politicians are growing frustrated at the lack of results/uninclusive growth that central banks are presiding over.
Also Read: Bank of Japan reboots policy to target interest rates
What is your message to fixed income investors?It’s been a fun ride low in yields and it is likely to go on longer. But when it ends, it will end very hard and very fast.
The markets seem to have taken concerns regarding Brexit (Britain’s exit of the European Union) in their stride. Is the worst yet to come?
We won’t know the results of Brexit until we know what Brexit really means. Clearly it has been a painless “phony war” so far. That’s unlikely to last too much longer. China is far more worrying from a global growth perspective: The housing and debt-bubbles there are not likely to end well, and the longer they are allowed to grow, the more so.
What is the outlook for flows to emerging markets (EMs) over the next six to 12 months?
EMs will be swept along by the global backdrop: Central banks will remain broadly supportive, but potential growth and political risk shocks will act in the other direction. India still has a good fundamental story in many respects, and should outperform. However, that is relative, so a 20 per cent fall elsewhere might mean a 15 per cent fall in India, as a hypothetical example.
What is your outlook for crude oil and precious metals?
Though we don’t forecast either of them in detail, for oil, we expect the “lower for longer” backdrop to prevail for now.