Return of the Taper Tantrum
In almost perfect alignment with the turn of the British summer weather, capital markets turned distinctly soggy over the past week. This, however, can for once not be blamed on the lately so hapless prime minister, nor Brexit. It is simply the result of disoriented markets and unfortunately quite aligned to what we had expected and feared. Well, that is less the marked fall in bond values, which makes this is a ‘market tantrum’, rather than just an ordinary stock market correction. Why? Well, it does not occur very often that equity and bond market sell-offs happen at the same time. Usually as one of them falls, the other one rises – hence why the combination of the 2 asset classes lowers overall investment risk in portfolios so effectively.
Competing for funds: the FCA’s investigation into asset management
The EU’s competition commissioner grabbed all the headlines this week, after fining Google €2.4bn for abusing its dominance of the search engine “market”. However, a competition report by the UK’s FCA (Financial Conduct Authority), which attracted far fewer headlines, could be of more significance to capital markets and investors in the UK. The UK asset management industry has ~£7tn (that’s £7,000,000,000,000 or over 2.5 times the UK ‘s annual GDP) of assets under management (including ~£3tn of pension and institutional funds).
India’s most audacious reform yet – taxes
An ambitious spirit of reform is currently gripping India, as Prime Minister Narendra Modi looks to drive forward his government’s far-reaching changes to the country’s monetary and fiscal systems. Last November (we reported), the government executed a sudden overnight demonetisation of all 500 and 1000 rupee notes (roughly £6 and £12 respectively), in an attempt to curtail India’s large shadow economy, stop the cash-flow to illegal activities and promote electronic over cash payment systems. In the process, they initially scrapped 86% of the country’s cash.
Concerted central banker mis-speak?
The heads of the central banks of Europe, the US and the UK caused some confusion in markets this week, on what investors may have viewed as a ‘hawkish’ shift towards tighter monetary policy. The market reaction, particularly in bonds, reminded investors of the ‘taper tantrum’ of 2013. Back then, US central bank chair Ben Bernanke decided to taper further liquidity, expanding bond purchases (QE) and causing a rare simultaneous negative reaction in both equity and bond markets.
Italian road to recovery via an old-school bank bailout
Italy upset its Eurozone partners by bailing out 2 regional banks with tax payer money. We explain why this probably makes sense as Italyu progresses rapidly towards economic and hopefully also political recovery.
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