Schroders Global Market Perspective - Q 2 2015

Equity and bond markets performed well during the first quarter, primarily driven by the  start of quantitative easing (QE) by the European Central Bank (ECB). Although ECB  president Mario Draghi has said that monetary policy alone cannot drive the recovery, the subsequent fall in the euro will go some way to boosting activity and alleviating  fears of deflation. Meanwhile, bond yields fell to record lows across the region with the front end of the German curve dropping below zero. We believe the spillover effects to other bond markets from this will be significant.

The US Federal Reserve did not ease monetary policy, but a dovish statement pushed expectations for the first rate rise further out. Meanwhile, the quarter saw easing by  other central banks, with 21 authorities loosening monetary policy. Low inflation - a consequence of lower energy prices - was key in allowing this move, which also pushed bond yields lower around the globe.

In terms of our own strategy we expect strong liquidity and modest improvements in growth to continue to support equities where we remain positive despite the increase in valuations. However, we have rotated away from the US toward Europe ex.UK on the  back of the changes in monetary policy. We remain neutral on bonds, but have downgraded Bunds and Treasuries.

In this Global Market Perspective we look at the impact of recent exchange rate moves and the latest round of the "currency wars" which have rolled around the world for the past five years. We also look at the way QE is affecting corporate behaviour by causing  companies to favour distributions rather than other forms of expenditure such as investment. This will have important implications for the way QE affects growth in the world economy.

In this quarter's Perspective we take a look back at 2014 and a look forward with our themes for 2015. There are also more detailed pieces on oil prices, bond yields and long term (30 year) returns as well as a summary of our current asset allocation views.

Keith Wade, Chief Economist, Schroders

Please klick here for the  Global Market Perspective Q2 2015

Enjoy reading,

Schroders Switzerland