BNP Paribas Asset Management

The meeting on 16-17 September 2015 of the Fed’s monetary policy committee, the FOMC, had been awaited anxiously by markets. Ever since early 2014 the Fed has flagged the possibility of a rate hike by mid-2015, which would be the first hike in nine years and would come after almost seven years of zero official interest rates.

During August investors dusted off their research reports about China as well as text books on how a large economy makes the tough transition from investment/export-led to service/domestic demand-led growth. It would appear that Chinese authorities intend to move away from a managed currency peg to a more ‘market-based’ exchange rate, in line with the IMF’s guidance on SDR (special drawing rights) basket eligibility.

The last week of August 2015 started with a bloodbath in global equities as the carryover from ongoing Chinese negative economic news and stock declines caused near-panic selling around the globe, with the US Dow Jones down over a thousand points around the opening bell (about 6.6%). Good explanations for the sudden plunge in US equities were tenuous. The best one could say was “Something in China*”.

Global financial markets continue to digest the People’s Bank of China’s (PBOC) announcement on 11 August to devalue the Chinese yuan. The performance of various risk assets suggests considerable discomfort with the policy action. In the United States the week following the announcement was characterised by the largest equity outflows in 15 weeks (US dollar 8.3 billion), the seventh consecutive week of sovereign debt inflows, and the third straight week of money market inflows

Despite headlines on slowing growth in emerging markets, global emerging market small cap stocks have outperformed most major equity indices so far this year1. In our view, managing investments in this diverse asset class actively can offer investors numerous benefits.

Understanding the factors that support or weaken a pension fund’s funding ratio is important since it forms the basis of crucial policy decisions including the allocation to risk sources in the investment portfolio. In part 1, we argued that funding ratio risk was an important metric and could produce valuable insights. In part 2, we argue that a more detailed grasp of the sources of economic risk could help the portfolio manager adjust the allocation as and when required.

Understanding the factors that support or weaken a pension fund’s funding ratio is important since it forms the basis of crucial policy decisions including the allocation to risk sources in the investment portfolio. In part 1, we argue that funding ratio risk is an important metric and can produce valuable insights. In part 2, we will argue that a more detailed grasp of the sources of economic risk can help the portfolio manager adjust the allocation as and when required.

Studies and analysis of samples taken in the core of polar ice layers show that over the last 800,000 years the level of concentration of atmospheric CO2 has ranged between highs (of about 300 parts per million (ppm)) and lows (of about 170 ppm)! The highs of 300 ppm were reached on several occasions – 130,000 thousand years ago, 240,000 years ago and 330,000 years ago.

In her recent speeches at the City Club of Cleveland, Ohio (on 10 July 2015) and at the semiannual testimony before the US Congress (on 15 July 2015), Federal Reserve (Fed) Chair Janet Yellen reiterated that a rate increase—“lift-off” in market parlance — is likely this year, while also stressing yet again that this decision will be data-dependent. According to Yellen, the labour market, one of the two focal points of Fed policy, remains weak as high levels of part-time work and low labour force participation rates persist.

Normalising monetary policy – it’s been a long time coming…

In this post we provide background information on the policy choice facing the Federal Reserve with regard to an increase in official interest rates and the current outlook.