Mackenzie Minute: August 5, 2016
Konstantin Boehmer, Vice President, Mackenzie Fixed Income Team, discusses recent events in the U.S. and Japan, upcoming events to watch and his approach for the coming months.
Over the past couple of weeks there were two major events. One were the weak US GDP figures and the other was the rise in Japanese government bond yields. The weak US GDP figures were partly explained by the inventory draw which was weaker than expected, and underlying information actually is quite constructive for the US. Japanese government bond yields rose from minus 30 basis points to minus 9 basis points, which is one of the worst sell offs in Japanese government bond history – at least the recent one. Here much of that can be explained by a shift towards less monetary stimulus more fiscal one.
Over the next couple of weeks we’re looking for two major events. One is the Jackson Hole meeting at the end of August and the other one is the ECB meeting in September. For the Jackson Hole meeting we are looking for more dovishness from the FLMC, from Chairwoman Yellen in particular and a less pre-emptive more data dependent fed. For the ECB we are expecting a shift towards a different composition of the bond purchase program.
We remain fairly constructive on global fixed income assets and that is despite our belief that growth and inflation will pick up over the next months and quarters. The Central Bank action will remain supportive for fixed income markets and that risk assets should do relatively well in that environment. The oil price is a little bit of a wild card here. We have seen a fairly significant decline over the past couple of weeks, but we don’t think this will drive out into something dramatic.