Mackenzie Minute: March 3, 2017
Konstantin Boehmer, Portfolio Manager on the Mackenzie Fixed Income Team, says fixed income markets are considering three potential developments in US monetary and fiscal policy.
The beginning of the year is typically tricky to read too much into. Here we have global strategists coming out with their outlook pieces, many of which are striking the same chord. We have traders getting a brand new P&L at the beginning of the year and we have global money managers approaching the new year as a clean slate. That leads to a lot of consensus trades, which can get challenged as the year moves on. The narrative so far for the year has been that the data is good and that is globally, so we have the U.S., Canada, Europe and also emerging markets all posting pretty decent data. Much of that data is coming from survey-based indicators, those are the soft indicators. Hard data – industrial production etc. – is lagging a little bit behind. What that implies is that there’s a lot of hope embedded in those upside data surprises. That hope is coming from the U.S. and it is an expectation of fiscal policy from the U.S. government.
The next couple of weeks will be critical. Not only do we have communication from the U.S. government but we also have the Federal Reserve meeting on March 15.
For global fixed income in general, this is as exciting as it can get, and here we have a few options that we have to assess. One is that if the Fed hikes rates without any accompanying policy from the U.S. government this will be negative for risky assets. The second one is that we get a rate hike with policy like a tax cut and/or infrastructure spending – that would generally be relatively well digested by risky assets, in our opinion. And the third option is that we have no rate hike, which should be temporarily beneficial for fixed-income and risky assets.