Insights / Blogs

Insights / Blogs

January 23, 2015

Week in Review: Central Banks Take Action

For the week ended 23 January 2015

  • ECB announces bond-buying stimulus plan
  • China's Q4 GDP grows at 7.3% pace
  • IMF lowers global growth forecast
  • Japan drops inflation outlook
  • US housing data strong

Weak global growth and the extensive drop in oil prices prompted broad central bank action to counter the widespread threat of deflation. In addition to the European Central Bank's announcement that it would launch a quantitative easing program, the Bank of Canada lowered its overnight lending rate by 0.25 percentage points to 0.75% and the People's Bank of China provided monetary stimulus.

January 22, 2015


  • The ECB has announced its much anticipated plans to pursue a programme of large-scale asset purchases.
  • At the margin, we think the programme can improve the eurozone’s chances of avoiding a deflationary malaise.
  • We see potential problems with dividing the QE purchases among the balance sheets of individual national central banks.
  • On balance, we don’t expect more liquidity in the system to meaningfully boost growth or advance the prospects for structural reform.
On 22 January, the European Central Bank (ECB) took some decisive steps towards tackling anaemic growth rates and disinflationary pressures. The measures announced are for €60 billion purchases per month of euro-denominated investment-grade securities issued by euro area governments and agencies, starting in March 2015 and continuing for 18 months through September 2016 — or until there is a sustained adjustment path in inflation to the target of below but close to 2%, thus effectively leaving the programme open ended.

Bank of Canada Cuts Rates

Joining other central banks, Canada’s policymakers take out insurance against the downside risks associated with falling oil prices.

The Bank of Canada (BoC) surprised markets with a 25-basis-point rate cut on 21 January, lowering the key policy rate to 0.75%. The overnight rate target had been at 1% since 2010. There was no guidance from the BoC on additional cuts, in keeping with Governor Stephen Poloz’s recent style.

Insurance policy
As we read the policy statement, the BoC appears to be taking out pre-emptive insurance against downside growth risks associated with the plunge in energy prices. A net energy producer and exporter, Canada will likely see slower economic growth in 2015 when falling oil prices hit production, capital spending and employment in oil-producing regions. The rate cut is designed to cushion other regions against any contagion from oil price weakness.

January 16, 2015

Zoom Out

Welcome to Zoom Out – a look at investing from a fresh point of view

Why Zoom Out? Because that’s what we do. While some get caught up in the noise of trader sentiment, fads and media hype, we take a broader – and longer view. Our strategy is based on our belief that fundamentals – not short-term events – drive the markets over the long term. So we employ a disciplined, consistent process across our global investment platform guided by three core principles: integrated research, global collaboration and active risk management. That's how we develop better insights and deliver on our commitment to clients.

Look at it this way: the market will react to the news of the day, and will do it again tomorrow. So prices will cluster in the short term. The wise investor sees this and recognizes there is limited opportunity to add value after trading costs. But take a longer view, say three to five years or more, and there's a much greater opportunity for investments to serve their purpose.

Our strategy is to focus on the big picture. Let’s Zoom Out together.

Investment Insight: Surprise from Switzerland

by Erik Weisman, Ph.D. and Ben Kottler, CFA

  • The Swiss National Bank abandoned the currency peg to the euro that was intended to protect Switzerland's export-oriented economy.
  • Translational impacts will likely be negative for Swiss company financials, as already reflected in initial stock moves and earnings estimate downgrades.
  • Transactional impacts will be seen stock by stock over longer periods through changes in competitive positioning and potential balance-sheet and dividend pressures.

Switzerland removes currency peg to euro
On 15 January, the Swiss National Bank (SNB) unexpectedly dropped the 1.20 floor on the euro (EUR) to Swiss franc (CHF) exchange rate. At the same time, the SNB lowered the interest rate on demand deposits from -0.25% to -0.75% and moved the target range for the three-month LIBOR (London Interbank Offered Rate) further into negative territory, between -1.25% and -0.75%, to limit strength in the CHF.