• Home
  • Equities
    • UK
    • Global
    • Europe
    • US
    • Asia
    • Emerging markets
    • Specialist
  • Bonds
  • Multi-asset
    • Managed funds
    • Property
    • Commodities
    • Alternatives
    • Absolute Return
  • Markets
    • UK
    • Global
    • Economics
    • Currencies
  • Funds
    • Unit trusts/OEICs
    • Investment Trusts
    • VCTs/EIS
    • Platforms
    • ETFs
    • Pensions
  • Regulation
  • Diversity
  • People moves
  • Events
  • Financial library
  • Industry blogs
  • Thematics spotlight
  • Investment Europe
  • Newsletters
  • Sign in
    • logged-in-corporate-menuYou are currently accessing Investment Week via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0) 1858 438800

      Email: [email protected]

      • Sign in
     
      • Account details
      • Newsletters
      • Contact support
      • Sign out
     
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
    • Facebook
    • YouTube
    • Instagram
  • Register
  • Events
    • Upcoming events
      event logo
      Women in Investment Awards 2019

      Investment Week is delighted to announce our Women in Investment Awards 2019, in partnership with HSBC Global Asset Management, will take place on 27th November in London. Nominations now open!

      • Date: 27 Nov 2019
      • Finsbury Square, London EC2, London
      event logo
      Investment Marketing Leaders Conference

      Investment Week is launching the Investment Marketing Leaders Conference. This conference will aim to bring together the top decision makers from asset management firms, advisory firms and investment banks to share their own experiences, discuss future strategies and workshop practical solutions.

      • Date: 29 Nov 2019
      • Sofitel St James 6 Waterloo Place London SW1Y 4AN , London
      event logo
      Tax Efficiency Awards 2019/20

      Investment Week is delighted to announce the Tax Efficiency Awards 2019/20

      • Date: 29 Nov 2019
      • One Moorgate Place Chartered Accountants Hall 1 Moorgate Pl London EC2R 6EA, London
      event logo
      Investment Week Select

      Your time. Your Choice. Tuesday 4th February 2020

      • Date: 04 Feb 2020
      • Meet in Place, London
      View all events
      Follow our events

      Sign up to receive email alerts about our events

      Sign up

  • White papers
    • Fidelity logo whitebackground1200 630px 1 120x194
      The ETF Evolution

      In this exclusive magazine exploring the evolution of quality and income ETF strategies, King reveals that each ETF follows an investment strategy developed by the group's in-house research team that leverages fundamental active insights to inform the factor definitions and applies portfolio construction principles to mitigate the unintended biases.

      Download
      7ded04ac5957a69da8d1df41c8f21a0c33988d8f 1 120x194
      A bet on the UK bounce back

      David Cumming, Aviva Investors' chief investment officer for equities, last year witnessed turbulent times for UK equities but he remains positive about the market in which he has a personal as well as a professional stake.

      Download
      Find white papers
      Search by title or subject area
      View all white papers
  • Industry blogs
  • Thematics spotlight
  • Investment Europe
Investment Week
Investment Week
Sponsored by BMO
  • Home
  • Equities
  • Bonds
  • Multi-asset
  • Markets
  • Funds
  • Regulation
  • Diversity
  • People moves
  • logged-in-corporate-menuYou are currently accessing Investment Week via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0) 1858 438800

    Email: [email protected]

    • Sign in
 
    • Account details
    • Newsletters
    • Contact support
    • Sign out
 
  • Trending
  • Financial planning
  • Jupiter: Big Interview
  • Gold Standard winners
  • Consistent 50
  • Global

Why the US dollar will be the 'gamechanger' of 2018

Axel Botte of Natixis
Axel Botte of Natixis
  • Axel Botte
  • 30 January 2018
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Share on Whatsapp
  • Send to  
0 Comments

Financial markets are heavily distorted by the unprecedented market presence of central banks. Markets have become extremely sensitive to changes in central bank actions.

The European Central Bank (ECB) is walking a fine line as it tries to exit quantitative easing in Q4 and tweak its rate guidance for 2019.

'Dark clouds' ahead for European sovereign bonds

Related articles

  • Kames Capital bond fund fee cut a 'sign of things to come'
  • Brexit Blog: Conservatives promise to 'get Brexit done' in election manifesto
  • Why EM local debt may shine brighter
  • Consistent 50: Bond funds dominate new entrants
  • Why US real estate remains attractive amid a 'mixed' economic picture

Meanwhile, US dollar weakness rooted in net external liabilities worth 40% of US GDP - double the level that prevailed on the onset of the financial crisis ten years ago - has the potential to spoil the party.

Even if the ECB scaled down asset purchases to €30bn a month starting in January, monetary stimulus looks increasingly at odds with robust growth in the euro area. Public deficits will be less than 1% of euro area GDP in 2018. 

Continued ECB bond-buying will further shrink the pool of assets available for markets, to the tune of €130bn for sovereign debt markets alone. Pressure on yields and spreads is indeed unabated. Meanwhile, several sovereign issuers have been upgraded. 

There could be more to come in March and April (Portugal and Spain). As sovereign spreads move in lockstep, Spain could soon trade on par with A-rated Ireland. There is no question that Spain and Portugal bonds, including credit, will remain in high demand until spring.

So what could cause the bond rally to derail? It looks like dollar weakness could be the game changer. Markets could test the ECB's commitment to put an end to asset purchases later this year. 

In the US, the Fed is engaged in planned balance sheet reduction and gradual Fed funds rate increases, which should be supportive of the dollar.

But overblown US external imbalances, induced in part by quantitative easing in Japan and the euro area, highlight the risk of a materially weaker dollar. Imbalances are likely to worsen as fiscal policy eases.

'A potential sea change event': ECB to halve €60bn bond buying programme

A lower dollar would also raise imported inflation at a time when the economy is operating at full employment. In the context, Fed policy could turn considerably more restrictive than anticipated. Higher US Treasury yields would pull global yields higher. 

In the euro area, Bund yields would follow on the upside with likely implications on investor demand for higher-risk assets.  

Axel Botte is fixed income strategist at Natixis Asset Management

Bull Points

• Portugal and Spain upgrades to fuel spread rally

• Corporate bonds supported by growth; continued ECB buying 

Bear Points

• Dollar weakness could spell faster Fed rate increases

• Higher US yields will pull Bund yields higher

Global Bonds three-year performance

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Share on Whatsapp
  • Send to  
  • Topics
  • Global
  • fund manager views
  • Natixis
  • Bonds
  • global bonds
  • Europe
  • European Central Bank
  • Portugal
  • Spain
  • ECB
  • Inflation
  • interest rate
  • quantitative easing
  • quantitative tightening
  • fixed income

More on Global

Ben Peters of Evenlode
Evenlode plans to expand range with Global Opportunities launch
David Dowsett of BlueBay Asset Management
The impact of shifting demographics
Randy Brown of Sun Life
Global growth pick-up key to higher bond yields
The pound had fallen around 16% since the EU referendum in 2016
Managers warned unhedged global bonds could see 'huge losses' if sterling rebounds
Charles Prideaux, Schroders
Investing in businesses of the future

Most read

Franklin Templeton names Jennifer Johnson as new CEO
Franklin Templeton names Jennifer Johnson as new CEO
Janus Henderson distribution head departs
Janus Henderson distribution head departs
Brooks Macdonald snaps up Cornelian AM for £39m
Brooks Macdonald snaps up Cornelian AM for £39m
FCA fines Henderson £1.9m for overcharging customers in 'closet trackers'
FCA fines Henderson £1.9m for overcharging customers in 'closet trackers'
Baillie Gifford's Mileva: Hargreaves Lansdown needs to 'grow up'
Baillie Gifford's Mileva: Hargreaves Lansdown needs to 'grow up'
Back to Top
Trustpilot

 

  • Contact us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters
  • Facebook
  • YouTube
  • Instagram

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017