Who Let the Doves Out?
With global economic and profit growth slowing, central banks around the world have shifted their policies to be accommodative or dovish. Specifically, central bank action of late has been to lower short-term interest rates to combat weakening growth. For example, the U.S. Federal Reserve’s (Fed) most recent rate cut was in September 2019. Taking the lead from major central banks, there have also been cuts in numerous emerging market countries.
Here’s a brief summary of some short-term rates today:
| Country | Rate |
|---|---|
| U.K. | 0.75% |
| U.S. | 1.75-2.00% |
| Europe | 0.00% |
| Japan | -0.10% |
| Australia | 0.75% |
| China | 4.20% |
Data as of 9/30/2019
These rate cuts, as well as other stimulative measures by central banks, should be supportive of global growth. However, the effect is not immediate and it takes some time to make its way through the financial system. For example, while homebuilder optimism and housing starts/permits data have picked up, manufacturing data is not yet showing signs of reversing the recent negative trend.
What does this mean for portfolios?
For those with globally diversified portfolios, the accommodative measures should help support the underlying fundamentals that can drive equity markets, such as profitability and growth. As for bonds, despite interest rates being at historic lows, we still believe high quality bonds are integral for portfolio stabilization. It can also be beneficial to maintain exposure to various types of bonds (government, corporate, securitized, and inflation-protected) each with unique characteristics for different market environments.
Economic and Market Commentary
Read our latest Economic and Market Commentary for Market Returns Year-To-Date, Market Returns Longer Term Annualized, Economic Indicators, and an Appendix.
Sources: Bis.org, Bloomberg, and JP Morgan. This is intended for informational purposes only and should not be construed as legal, investment or financial advice. Please consult your legal, investment and financial professionals regarding your specific circumstances.