IPE Expectations Indicator October 2016
The current survey period captured the end of the summer. The number of managers voicing concern about interest rate policy is high. However, the current environment has yet to reflect the alarms of many major investors and the survey results indicate most managers expect little dramatic near-term movement. Whether it is not yet the season for action, or investors expect the status quo to continue, is yet unclear.
|% predicting rise (previous month)||17 (14)||11 (7)||17 (16)||12 (10)|
|% predicting stability (previous month)||39 (39)||61 (60)||49 (47)||56 (57)|
|% predicting fall (previous month)||44 (47)||28 (33)||34 (37)||32 (33)|
Expectations for bond prices to rise were universal by denomination. For each denomination, excluding the euro, expectations for price increases are at or near peak levels, for at least as far back as 2014. Perhaps managers think the limits of ECB influence in these markets has been reached, or that there will be a pause in action for a while. What is clear is that expectations for stability are the dominant theme in countries where there have been recent interest rate reductions or accommodative policies, while the majority of managers are predicting a fall in USD-denominated bonds.
|% predicting rise (previous month)||32 (31)||37 (41)||27 (34)||43 (47)||28 (28)|
|% predicting stability (previous month)||47 (47)||50 (45)||54 (48)||40 (41)||44 (46)|
|% predicting fall (previous month)||21 (22)||13 (14)||19 (18)||17 (12)||28 (26)|
Whereas a majority expects USD bonds to decline, the US was the only equity market where expectations for gains rose – for the third consecutive month. A minority of managers expect Japanese equities to rise. However, while expectations for Japanese equity declines rose, a larger proportion of managers expect stability in this region than in any other region. For UK equities, expectations for gains are near their lowest and for a fall at their highest. The Brexit vote was a dramatic turning point for expectations in UK markets. Since the vote, the proportion predicting a fall has more than doubled over its medium-term average.
|% predicting rise (previous month)||46 (48)||54 (52)||49 (57)|
|% predicting stability (previous month)||44 (40)||37 (38)||35 (29)|
|% predicting fall (previous month)||10 (12)||9 (10)||16 (14)|
The picture in currencies is less clear. It appears that managers believe yen weakness may return, as expectations of dollar strength to the yen have been trending higher, and anticipation of the opposite has been trending lower. While the majority still expects dollar strength versus the euro, expectations for stability have been the only segment to rise over the last two months. There also appears to be less anxiety towards weakness in sterling. Although still well above the levels of a year ago, the proportion expecting a decline in sterling has declined since the Brexit vote. Managers do expect further declines in sterling but with a greater expectation of stability.