With continued unease about the state of global growth, NN IP has waded into the debate about the direction of interest rates in a statement the firm has released.
As discussed by Fundeye recently, the move to a normalisation of monetary policy, one aspect being hiking interest rates appears to be abandoned by the largest central banks in the world including the mighty Federal Reserve.
NN IP believes that a 25 basis point cut by the Fed is likely next week, followed by one or two more ‘insurance’ rate cuts. This is a far cry from Fed Chair Jerome Powell’s assertions last year that his interest rate hiking policy was on ‘autopilot’, a statement that made the equity markets very jittery in Q4 last year.
The firm also believes that the ECB might even cut rates today, although added this is more likely in September.
Patrick Moonen, principal strategist multi-asset, NN Investment Partners, said in a statement: “More evidence of accommodative central banks, a lack of progress in the US-Chinese trade negotiations and somewhat better growth data from Europe and emerging markets has emerged recently, but there has been little material change in the environment for financial markets.
“The key risks keeping us from taking high-conviction positions remain the high uncertainty about global trade and its negative impact on business confidence and on capex spending.
“Dovish central banks are providing support to risky assets, but we fear markets may be underestimating the current risks to growth created by the high trade uncertainty.”
The firm added that in this environment fixed income spreads are their preferred asset class.
While loose monetary policy has clearly aided equity markets this year, many ponder just how much growth is left in the tank. Perhaps if more corporates had used this extended period of accommodative monetary policy to invest in their businesses rather than in many cases fund shareholder friendly actions such as share buy-backs the framework would have been more stable for NN IP to be more positive on equities.
