Central banks

During the week we had the Bank of Japan do a “dovish hike”, whereby it wasn’t much, had been well flagged, and the market reaction (yen down, equities up) certainly suggested it was “dovish” at the margin.

The Fed still indicated it is willing to cut rates, the median “cutting dot” didn’t change, as had been feared, and the RBA removed the hawkish wording (words to the effect of “next move might be up”).

The Bank of England did something similar, and the Swiss CB cut rates. Now Switzerland has had well behaved inflation for a while, so it was fine to cut, although it is funny how much attention it got (someone on the internet pointed out Brazil’s central bank had been cutting for months and no-one cared).

What’s the point, here. Well, we are now beyond the “peak” for monetary policy. It’s about normalisation from here, mild cuts, hopefully stable output and employment, no overshooting to the downside.

That’s a fine backdrop for equities; corporate profits should be stable and growing, and discount rates aren’t gobbling it all up.

It’s a so-so backdrop for bonds, in that you don’t get your capital gains (well, not a lot) because the cuts are already priced in, so it’s mostly about carry.

But, the option value of those bonds matters. The carry is good, and if we do overshoot, you get more cuts and thus a stronger total return to the bonds.

So they are, we think, just fine.

The 60/40 portfolio definitely ain’t dead.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.