3Q 2019 Market & Strategy Update
The Fed and other central banks have started focusing on core inflation outcomes - a decisive policy shift which suggests that rates will be "low for longer" than previously expected.
German bunds have become a lightning rod for market anxiety; Western Asset's Gordon Brown argues that too much bad news is built into current pricing, obscuring some key long-term macro drivers.
Q2 Market & Strategy Update
While the global growth rate has moderated and is still very modest, we expect it to be slightly better than 3.5% for the year. We view the recent inversion of a portion of the yield curve as a yellow warning sign rather than a flashing red signal of imminent recession.
January webcast summary
Subdued global inflation should provide monetary policymakers with a ramp to be more accommodative and perhaps pull back from their normalization efforts. We’re encouraged by the Fed's latest commitment to be more data-dependent.
Q2 Market Commentary
We remain cautiously optimistic that the Fed will see the light, that Brexit will move in a benign fashion, and that tariff disputes will subside. Spread sectors and duration remain our focus.
Chart of the Week
Chart courtesy of Clarion Partners. Sources: NBER, Moody’s Analytics, Clarion Partners Investment Research as of July 2019. Each year is the start period for each recession or expansion. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
Chart of the Week
China’s latest tariffs focus on U.S. agricultural exports; financial markets are pricing in at least one Fed rate cut this year; U.S. consumers’ debt load reached $13.67 trillion, with student debt outstripping auto loans.
There's reason and room for more rate cuts ahead, but it's unclear if that includes September.
Commercial Real Estate Finance
These real-estate loan securities are growing in number, requiring strong, fundamentals-based analysis.
Western Asset examines recent trends in the muni bond market and provides its outlook about conditions ahead.
As threatening as natural disasters can be, their impact on the municipal bond market remains fairly muted.
Focus on the Economy
Despite widespread worries about the yield curve, what we've seen recently is not a true inversion. But preventing that from occurring is one reason the Fed could move to lower rates later this year.
Understanding the causes
What's behind the persistently low inflation that could drive the Fed to cut rates this year? A host of factors suggest the Fed's 2% target for inflation is overly optimistic.
June Meeting Analysis
Wednesday's Fed statement makes a rate cut in July the base case for investors, with a 25-basis-point move most likely.
Though still highly unlikely, we do not entirely rule out an all-out trade war. It would take near-complete disruption of trade flows to threaten recession in the US.
The bond market has already priced in cuts later this year. Though possibly ahead of itself in terms of timing, the market’s call on the direction of rates looks right, notes Western Asset’s John Bellows.
The implications for trade, how Mexico may respond, and what it means for Mexican rates and asset prices.
Despite the downbeat outlook, we believe rates still have appeal at current levels, with additional interest rate cuts possible to counter the country's growth challenges.
The bond market will be looking for any indirect impacts from the tariffs, which could stem from changes in financial conditions or changes to the global growth outlook.
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