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Economics

Risks, Returns and Outlooks

Impact of Lula on Brazil's Stock Market and Bonds

RFPnetworks Impact Lula Brazil Markets depicted by colourful street mural.
Multi-Asset

Who would have thought it was possible. To comeback and win the Presidency of Brazil with a margin of barely 2%. Markets are calm. Investors are happy. But how will Lula's new Presidency affect the Brazil Equity and Debt markets?

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Economics

What Happens When Liquidity Dries Up?

RFPnetworks Economic Research on Liquidity depicted by dry river bed between mountains.
Multi-Asset

As central bankers raise rates across the globe in their fight against inflation, institutional investors are turning their attention to liquidity. In this new chapter of global political economy, a world drained of liquidity is a world where assets are no longer priced on fundamentals.

Being short liquidity means sellers of assets will by necessity take what they can get in order to meet their commitments. Or put differently, being long liquidity facilitates the purchase of quality assets at deep discounts to intrinsic value.

This presents a dichotomy for institutional investors:

An ALM driven investor will be guided by a series of strategic asset allocation benchmarks and associated risk budgets. Which empirically provide a confidence level that their assets will generate enough returns to cover their current and future obligations. So the tendency is to sit out the storm.

But there are hard core investors who see the removal of liquidity from the global economic system, as an opportunity to pounce. Their research inside RFPnetworks is crossing all asset classes. Searching each of the 11 feeds for terms such as "cheap", "intrinsic value", "discount", and "distressed".

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Economics
Ruffer LLP

We see danger ahead. Markets are still too high, and protection is expensive in an increasingly nervous world; common sense suggests one should invest conservatively, and in safe assets. In a world where people find themselves without the ability to pay commitments as they arise, forced selling drives prices. Among risky assets like equities, one of the counter-intuitive things in a liquidity crisis is that securities perceived as safest and most liquid go down sharply, because investors are forced to sell what they can, not what they want to. We therefore regard plentiful liquidity in the portfolio as overwhelmingly attractive; it allows us to make the most of the opportunities that arise in the aftermath of a crisis. But first we have to get through the storm.

Is Fed Guidance in Backwardisation or Contango?

RFPnetworks Fed Guidance analysis depicted by random curves
Multi-Asset

It seems as though Fed Guidance has moved from being behind the curve, to springing off the curve...at least that is the view of many economists in the research feeds inside RFPnetworks.

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Economics

Is Inflation Headed Higher or Are We At Peak?

RFPnetworks-Inflation-Expectations-2022
Multi-Asset

As the official rhetoric has moved from transitory, to permanent, to all-time-highs, the focus on protecting portfolios from inflation is traversing all asset classes. The search query 'Inflation Protection' brings back hundreds of new research results every week. So whilst this topic is at number 10 in terms of clicks, in terms of sheer volume of impressions it would be firmly at number one.

What is happening is lots of institutional scrolling, and headline reading. Institutions seem to be searching for the ultimate solution to inflation protection. It does not exist. But there is always hope. In the meantime, the novel ideas and in-depth analysis of the conundrum by asset managers, is being well received.

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Economics
Ruffer LLP

The thought that central bankers can do much to change the broad sweep of inflation is, in my view, far-fetched. Lowering interest rates and keeping them down ensured that, in the aftermath of the 2008 crash, the world escaped a dislocative deflationary recession, and experienced instead a reprieve from deflation. Their actions, however, had an inevitable consequence: the onset of a virulent inflation. This was perfectly predictable at the time, and, indeed, we predicted it.
There was, however, no money to be made from the insight that money had lost stability post-2008 – the car would swerve maybe towards deflation, maybe towards inflation, but the final result would certainly be inflationary, because the authorities’ obsession was (and is) to avoid deflation. The game changer was to be rightly prepared for inflation, and for the last ten years, we have been. To call it too early is, in our book, to call it on time.

What is the ECB Transmission Protection Instrument (TPI) all about?

ECB Transmission Protection Instument (TPI) research on RFPnetworks depicted by steel car shift stick on dark background.
Multi-Asset

The main focus of research in our fixed income feed was the ECB's new Transmission Protection Instrument (TPI). Most research was positive on this anti-fragmentation tool and it's clear objective - an unlimited bond buying backstop to facilitate the transmission of monetary policy across the EU. However, details on how  it would work in practice with respect to peripheral countries, and particularly Italy, remain less  clear.

Related to this theme was the ECB's decision to raise rates last week by 50 basis points. Almost all managers expected 25 basis points based on the forward guidance. As such, many managers are now questioning the credibility of forward guidance in an inflationary world.

Lots of questions remain.

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Economics

Why Is The ECB Not Raising Interest Rates Faster?

Investment Strategist on laptop reading economic research on RFPnetworks
Fixed Income

Great question. What is the logic?

The last weeks brought lots of interest rate surprises from Central Banks.

But what does this all mean for Fixed Income Investment Manager Selectors? And Asset Manager Sales, Marketing and RFP teams?

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Economics

What Are The Biggest Problems of Using Monetary Policy?

Monetary Policy Research on RFPnetworks depicted by Central Banker thinking in corridor.
Multi-Asset

Unlike in Japan, the UK, US and now the EU are in all rates lift-off mode. With reluctance, Central Bankers have implicitly admitted their previous policy error of not raising rates sooner. But was this mistake deliberate? Or unpredictable? Last week, Asset allocators were searching for answers to these two questions in our Multi-Asset feed.

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Economics

Policy Normalisation, Recession & Soft Landings

Economics Research on soft landings on RFPnetworks depicted my man on trampoline smiling
Multi-Asset

From the UK to Italy, and beyond, Central Bankers remain divided on the level of pain they are prepared to inflict on the economy as rates are hiked to combat the malicious food and energy driven inflation numbers.

Is there a solution?

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Economics

Is 5% Growth Possible in China This Year?

China Economic research on RFPnetworks depicted by person wearing toy Panda Head sitting in front of luxury card.
Multi-Asset

In an uncanny way, China has a record of delivering on it's stated growth target. Come what may. But is it possible given the exogenous shocks it faces today?

On the one side, the zero-COVID policy currently imposes some level of restriction on 25-35% of the economy. Even beyond Shanghai. And it is unclear how long this will last.

On the other side, credit and public debt growth are gaining ground. And further policy support in terms of infrastructure spending is the data point many strategists are watching closely.

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Economics

Central Bank Diversion on Monetary Policy

Central Bank Economic Research on RFPnetworks depicted by two Asian men on crossing walking in different directions.
Multi-Asset

Since March 2020, the 10-year Government bond spread between the US and China has collapsed from 2.5% to zero today.

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Economics

The Great Debate About The FED Being Behind The Curve

Fed Behind The Curve research on RFPnetworks depicted by walkers in desert looking towards a big climb
Multi-Asset

With the FED's official objectives of both price stability and maximum employment, the latest round of macro data has economists questioning FED  rhetoric.

On the one side, US March 2022 headline inflation came in at 8.5%, whilst unemployment is projected to reach 3% by year end, a level not seen since the 1950's.

So should the FED be raising rates faster? And if so, why aren't they?

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Economics

Will The Year Of The Tiger Roar Back?

China Economic Research on RFPnetworks depicted by tiger
Multi-Asset

At the start of this lunar year, investors were expecting the new term of President Xi Jinping to boost the economy's momentum following the COVID induced challenges.

However, with the overhang of the Real Estate sector troubles still causing headaches, and now the delicate political situation given China's relationship with Russia, investors are losing patience. How will the PBOC and the Chinese Government react?

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Economics

What's Happening At Central Banks Around The Globe?

Economic Research on RFPnetworks depicted by entrance to Bank of England
Multi-Asset

As the 1Q22 macro data begins to surface, Central Banks across the globe are slowly accepting what bond markets already suspected.

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Economics

Interest Rates & Quantitative Tightening

Economic Research on RFPnetworks depicted by a knot tightening
Multi-Asset

As the realisation sinks in that inflation won't be transitory after all, investors have been struck by quantitative tightening, multiple expected consecutive rate rises in 2022, and now an inverted yield curve.

What does this all mean for asset allocation, and how should investors adapt their portfolios?

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Economics

Economic Forecasting. What Works. What Doesn't?

Economic Research on RFPnetworks depicted by tarot card reading
Multi-Asset

Should investors listen to the Yield curve and the 2 and 10 year spreads, or is the noise to deafening?

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Economics

Is A Monetary Policy Mistake Inevitable

Central Bank Economic Research on RFPnetworks depicted by tangled knitting
Multi-Asset

Central Banks appear to be tangled in their own knitting.

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Economics

What Are The Short-Term & Long-Term Effects of Sanctions on Russia?

Economic research on RFPnetworks depicted by concrete building in Russia
Multi-Asset

In the short term, sanctions on Russia have effected economic isolation. The question now is what are the long term implications for the Russian Economy?

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Economics

Are China's Growth Targets Achievable?

Chinese Economic Research on RFPnetworks depicted by dart missing target on dartboard.
Multi-Asset

With China still targeting 5 to 5.5% year-on-year growth, investors are now questioning whether this is feasible.

The fact remains that the real estate sector continues to struggle, with loans to developers at falling at a faster rate than has been seen in a decade. A drag on economic growth which is compounded by China's zero COVID case lockdown policy.

As things stand today, Asian equites & credit seem to be very challenging headwinds.

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Economics

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