Featured Market Outlook
Central Bank Watch
The US Federal Reserve (Fed) left interest rates on hold on Wednesday, arguing that while the case for a hike has strengthened, it still needs more evidence. Could Japan’s struggles be a factor?
Biotech and more
Investors who focus on US stocks' overall price level are overlooking the values available in health care and other sectors, says Evan Bauman of ClearBridge Investments.
Mid-Week Bond Update
Global bond markets gave a lukewarm welcome to the Bank of Japan’s new approach to monetary policy, but cheered the US Federal Reserve leaving rates on hold.
Martin Currie on global equities:
Despite challenging conditions in many world markets, Martin Currie remains committed to unearthing value for investors. Whether in Asia, Japan, Europe and Emerging Markets, there are companies whose future prospects may be out of step with current valuations – and potential opportunities for gain as time unfolds.
The yield curve:
Recent flattening in the yield curve could mean the market sees something about growth and inflation ahead that policymakers don’t, notes Western Asset CIO Ken Leech.
Mid-Week Bond Update
Global bond markets plunged over the past five trading days after the European Central Bank (ECB) refrained from expanding its monetary stimulus programme. Investors, who have enjoyed a years-long bond rally supported by loose monetary policy in the US, Europe and Japan, now fear the stimulus packages may be coming to an end: the US Federal Reserve (Fed) has repeatedly signalled its willingness to raise rates this year; the ECB stayed put last week, and the Bank of Japan is reviewing its own programme.
Mid-Week Bond Update
Global bond markets cheered a battery of soft US data - manufacturing, services, home prices and job growth -, which dampened market-implied expectations of a rate hike later this month. Tuesday’s non-manufacturing August survey came in especially weak: it was the largest single-month decline since 2008 and the lowest level since 2010. The US dollar sank and, once again, prospects of lower-for-longer interest rates pushed up traditional risk assets, such as Emerging Markets (EM) and High Yield. Most corporate spreads tightened, while US loan prices continued to rise after default data hit a 17-month low in August. In Europe, a French drug company and a German maker of detergent and other household goods sold bonds at negative yields – the first European companies to do so outside the financial sector.
Unconstrained bond investing:
Unconstrained strategies may be suitable in an environment where global growth is facing stronger headwinds, market volatility is on the rise, and challenging markets require greater flexibility. They have no formal benchmark and comprise exposures of various asset types that have differing risk budgets.
The big picture in bonds:
With further accommodation from central banks likely, Western Asset CIO Ken Leech believes spread sectors should continue to offer attractive returns, with Treasuries and sovereign bonds underpinned by low rates.
Despite the economic pessimism now impacting valuations in global bonds, Brandywine Global's David Hoffman and Steve Smith perceive opportunity in developing markets in the 2nd half of 2016.
Western Asset continues to be cautiously optimistic that global growth will hold up, but is cognizant that Brexit has introduced new uncertainties. Western’s central theme remains that favorable valuations, strong fundamentals and reasonable growth are a powerful backdrop for credit.
Municipal bonds outperformed their taxable counterparts in the second quarter and Western Asset still has a somewhat optimistic outlook for the sector going forward.
There continues to be value in credit
After a very challenging start of the year, the credit rally since mid-February, briefly interrupted by the Brexit rollercoaster, has been nothing short of remarkable. Despite healthy year-to-date returns, however, the rally has only taken valuations back to what we would consider attractive levels given our macro outlook and credit fundamentals.
Chuck Royce and Francis Gannon discuss why the combination of earnings and valuation could bolster small-cap value’s leadership in the current cycle.
There's much in the global economy that defies expectations; for ClearBridge co-CIO Hersh Cohen, the answer is to stay focused on solid assets with the potential for stable or rising dividends, as well as diminished volatility.
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