*By Christophe Barraud, Chief Economist & Strategist at Market Securities
According to TrackInsight data, investors kept accumulating “High Dividend All Caps Stocks” ETFs with cumulative inflows hitting a new YTD high. In a context where central banks in both emerging and developed countries have adopted a more dovish policy stance and have implemented accommodative measures, interest rates declined sharply at the global level. As a result, investors have shifted to a search for yield mode benefiting to risky assets (including stocks).
On Monday, New Zealand’s central bank announced that it is taking another look at its strategy for unconventional monetary policy. According to a Bloomberg article, “the Treasury Department has also been looking at the sort of crisis measures that might be employed should the RBNZ exhaust its conventional policy armory. In a paper presented to Finance Minister Grant Robertson in January and later released under the OIA, Treasury suggests three non-standard measures would be available to the bank “, including large scale purchases of either government or corporate bonds, known as quantitative easing.
Elsewhere, Australia’s central bank chief Philip Lowe said in a speech that it is reasonable to expect “an extended period” of low interest rates, and that the central bank is prepared to ease again if his back-to-back cuts fail to revive economic growth.
Today, the European Central Bank is also set to signal that it is once again preparing to step in to support the euro zone. Most analysts predict that the Governing Council will change its policy language to set markets up for a September cut in the deposit rate (with risks skewed toward in immediate action). In addition, Draghi may choose to signal the possibility of restarting asset purchases (either in the policy statement or in his press conference). As a reminder, the ECB’s policy statement will be published at 12:45 (uk time). A press conference with Draghi and Vice President Luis de Guindos will follow 45 minutes later.
Earlier, investors will focus on Turkish central bank which is expected to cut rates for the first time since 2016 (by 250 basis points).
Next week will also be interesting. According to the WSJ, Fed officials signalled they are ready to lower interest rates by a quarter-percentage point on July 31 (20% probability of a 50bps rate cut according to market pricing), while indicating the potential for additional reductions in September.
Finally, according to Bloomberg, roughly a third of polled economists expect the Bank of Japan to strengthen its pledge on future interest rates at next week’s meeting (July 30). In this context, downward pressures on global yields are likely to persist at least in the short term.
Disclaimer – http://www.market-securities.com/disclaimer-2