The expectation survey for August was completed in a post-Brexit market environment in which uncertainty was high, but cooler heads ultimately prevailed. Initial reactions caused a rebound in USD strength and an equity market sell-off, which was ultimately short-lived. Nevertheless, disrupted markets will influence expectations and results from the survey reflect managers’ concerns towards riskier assets.
|% predicting rise (previous month)||27 (24)||49 (63)||35 (40)||37 (41)||27 (33)|
|% predicting stability (previous month)||52 (55)||35 (27)||46 (44)||46 (45)||46 (54)|
|% predicting fall (previous month)||21 (21)||16 (10)||19 (16)||17 (14)||27 (13)|
The other side of this equation, near-term risk aversion was that expectations for equity markets to rise dropped to their lowest level in at least the last twenty months. The trend here was not necessarily as set in prior months as it was for bond prices, however. Managers have been lowering their expectations for equity market gains for several months now, dating back to their recent high in June 2015. What the recent market activity did was reduce those expectations for gains by the second fastest rate in at least 20 months. Additionally, for the first time recently, the proportion of managers expecting euro-zone equities to rise fell below 50%, the last of the regional markets to break that consensus level. Interestingly, manager expectations for US equity markets gains bucked the trend and rose by 3%.
|% predicting price rise (previous month)||19 (7)||10 (5)||20 (6)||17 (9)|
|% predicting price stability (previous month)||43 (45)||59 (66)||34 (46)||47 (55)|
|% predicting price fall (previous month)||38 (48)||31 (29)||46 (48)||36 (36)|
The first very clear signal from managers was an expectation for rising allocations to bonds, which aligns mostly with the notion of a preference for safety amid uncertainty. The portion of managers anticipating bond prices to rise more than doubled from July. In aggregate across currencies, the level was the highest in more than 20 months. Sterling denominated bonds were expected to increase the most, followed by dollar, yen and euro bonds. Only expectations for euro denominated bond price appreciation did not surpass, or come close to surpassing recent historical high levels. Essentially, what had been a four-month trend of managers expecting bond yields to rise, was rapidly and significantly reversed in the wake of the unanticipated Brexit vote.
|% predicting rise (previous month)||55 (43)||58 (48)||51 (27)|
|% predicting stability (previous month)||35 (41)||32 (38)||31 (48)|
|% predicting fall (previous month)||10 (16)||10 (14)||18 (25)|
The last piece of the puzzle of what managers expected in the wake of the Brexit vote was related to monetary policy. The consensus was that the UK pound would devalue most significantly versus the US dollar, as the BOE would be expected to weaken the pound to support its economy. And, generally, that the US would be the least likely to weaken its currency, at least on a relative basis.
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