Thursday, 3 November 2016

When doves cry

Yes, dear reader(s), it's the Thursday morning PR email, back by popular demand. 'When doves cry, boss? It sounds like a song.' It is a song, Voice. But ...

When doves cry: where to next for steepening yield curves? By Antoine Lesne, Head of SPDR ETF Research & Strategy EMEA.

Right, here we go -

Most developed market yield curves have suffered bear steepening over the past few weeks, despite quantitative easing (QE). This has been largely due to a less dovish US Federal Reserve (Fed), a change in the Bank of Japan's policy, the risk of tapering by the European Central Bank (ECB), and the return of inflation (albeit still mild).

You see? 'Er ... I see "dovish". I don't see "when doves cry", man.' Christ! Some people are never happy!

Recent studies have shown that performance of risk assets has been primarily driven by central banks' actions. Meanwhile, in 2016, duration has been the driver of portfolio growth. So as the 'doves cry', the curves may steepen and duration risk must be controlled.

You see? 'Yeah, uh ... "doves cry", boss. I'll be honest with you, this all seems a bit desperate.' Ha! Well, don't blame me. Blame the PR firm, or that Antoine Lesne character. Yeah, blame him. 'Okay.' / Well, here's the rest of it -

This started in early September with the traditionally dovish Fed board member Rosengren calling for a rate hike in the US sooner rather than later. Meanwhile, the ECB's potential taper talks made the headlines as the threat of deflation seems to be fading away, and that the ECB could be running short of paper to buy before March 2017.

Markets are watching the next trail of events, notwithstanding the US elections and the December Fed and ECB meetings; this could help keep a lid on 10-year yields, but recent economic and inflation figures may give room for a further steepening of the curves.

We don't believe the Fed will announce a change on 2 November, and therefore focus on the December meeting instead. Would a hike mean a remake of early 2016? If so the increase in bond yields could soon run out of steam.

Ha! The US election. We won't need to worry about any of this if Trump gets in. 'Why not?' Well, a nuclear war, Voice. The end of civilization. Those of us who survive will just be crawling around in the atomic dust.


Anything else? Well, it's the end of the week. Uh, I don't know. Music? I'm listening to David Bowie's Young Americans. How many recording artists are as brave as Bowie these days? To suddenly switch from a run of weird rock albums to mainstream soul, and then two years later to record an album of avant-garde electronic music. 'It's crazy, boss.' Yes. Even Kanye West isn't that wild.

My music? [Jesus! I don't do updates no more!!!] I might record my songs over the next few days - if I feel like it - before the fresh strings go off. I've got to be in a positive mood though. 'Are you going to do something weird and new like Bowie, Mikey?' No. 'Oh. Shame.' Shut up! Everything's be done, man. I mean, look at Radiohead. They're just wasting their time. Anything they do now will just be a variation on Pink Floyd. No, if popular music has a future ... there's only one way forward: to write the best songs ever. I mean, better than any classics from the past, you dig? Trying to create something "new" is a mug's game.*

Well, that's what I reckon, anyway. Laters.

*Except in literature, of course, where I managed to invent conceptual literature. (It was the natural and obvious[?] move after Duchamp in art, if anyone had the balls to make it - only me!) However, this should be the last ever development.