Weekly Investment Update
The latest news from the ECB and the Fed, and the prospects for ‘passion’ investments like classic cars, fine wine and fine art.
3 min read
This week we take a look at the latest news from the European Central Bank and the US Federal Reserve.
ECB set to reveal all in October
The European Central Bank (ECB) said this week that any plans to start scaling back its quantitative easing programme would be announced in October. President Mario Draghi also said interest rates would be kept at current levels while the programme winds down.
We think the ECB is unlikely to simply stop its €60bn a month bond buying programme. It is more likely to reduce it to €50bn or €40bn a month in the first instance, depending on economic conditions.
The euro is up about 15% on the dollar so far this year, which in itself has the effect of slowing down the economy and tightening monetary conditions – probably equivalent to one rate hike.
This should be positive for our exposure to European equities. Valuations remain attractive and the ECB will not want to do anything to derail the decent recovery we currently see in Europe. Appreciation of the euro is good for our portfolios. We think it likely that the currency will continue to appreciate against sterling and the dollar.
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Fed vacancies could cause concern
The resignation this week of Stanley Fischer from the Federal Open Market Committee at the US Federal Reserve (Fed) means there will be four vacancies at the central bank. There could also be a fifth when its chair Janet Yellen comes to the end of her term next February – although her future has not yet been confirmed.
This turnover of personnel is unprecedented and comes at a critical time for monetary policy. The direction of Fed policy is hugely important to markets and big changes could alter the dynamics of the market.
However, at Coutts we think that, whatever changes we see at the Fed, longer term it is unlikely to be deterred from its broad commitment to a gradual tightening of monetary policy dictated by underlying data.
Passionate about portfolios
The Coutts Index 2017 was launched last week, analysing the changing values of ‘passion’ assets such as fine wine, fine art, luxury properties and classic cars.
In 2016, we have seen the index rise by 1.2% – putting the increase since it started back in 2005 at 76.6%. Rare musical instruments have taken top place this year, rising by 16.4%, while classic cars saw the largest fall at -10.4%. Despite this, cars gained the most across the index categories since 2005, increasing fourfold over the 12 years represented by the data.
Interestingly, global equities in local currencies rose by almost the same amount as the index over the same period, according to the MSCI AC World index. While this shows that investing in passion assets can offer similar returns to conventional assets, it is worth bearing in mind that prices tend to be driven entirely by sentiment, making them more volatile, and the assets can be illiquid. This means that they can be harder to sell when you want to realise gains and there’s the possibility of sudden and unpredictable falls in value.
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