Mackenzie Minute: July 13, 2018
Movin Mokbel, Vice President, Mackenzie Fixed Income Team, gives his perspective on expanding tariffs and how the Fed and other central banks will react should a softening global economy emerge.
MOVIN MOKBEL: We are seeing increasing levels of protectionism on the global trade, really initiated by the U.S. administration under Trump. What is worrying is these trade tariffs are not only expanding and wide reaching but these tariffs, if they fully materialize and deteriorate into a full-blown trade wars, can have an adverse impact on the global economy, including the U.S. economy.
We have had two rate hikes in the U.S. so far in 2018 and we'll be watching the impact of these potential tariffs on the economic outlook and the Fed path for future rate hikes. As of now, we are still expecting at least one more hike in the U.S. in 2018. Central banks all over the world, including the Bank of Canada, will have to adjust their policies and should a softening global economy start to emerge.
A growing economy, with the backdrop of rising rates, is in a typical environment where we overweight loan exposure. Lately we have even more selective on deals we invest in, avoiding sectors that can be hit hard by tariffs. We are also underweight in credit products with interest rate risk like long duration and BB rated high yield bonds. We are staying focused and invested in the top of the capital structure and mostly avoiding second lien loans. Lastly, our tactical flexible approach to fixed income management will be key as we analyze the uncertainties in the near future.