Eric Stein, Co-Director of Global Fixed Income at Eaton Vance, says the overall US economy is generally healthy part from weak investment levels. He adheres to the common view that inflation expectations matter even more than the trade war when it comes to Fed rate decisions and he predicts further easing. Stein sees EMs as the key beneficiaries of the Western interest rate race to the bottom – he will be looking at New Zealand and Thai inflation-linked bonds. Homebuyers are also enjoying the low rates, as Logan Mohtashami, a seasoned financial writer, explains. The 30-year mortgage rate as measured by the mortgage loan company Freddie Mac has hit its lowest levels since 2016, helping boost the sale of homes. Mohtashami sees a very high lending quality in the current cycle and if a new recession hits we won’t see a wave of defaults. Nearing the end of the podcast, the conversation turns to the woes of conglomerates whose hefty business model isn’t suited for today’s market environment. Kraft-Heinz’s dismal earnings report last week is a good example – now Fitch is warning their bonds might go to junk.
Why does this matter? Despite all the pessimistic views on the recent rate cuts there might yet be some winners among emerging markets. The Fed’s 25bps cut gives emerging economies welcome breathing space to ease their own interest rates and get back on a path to higher growth, but the unexpected stronger dollar was bad news.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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