8 December 2014
In another coup for the Brewin Podcast Stephanie Flanders, JP Morgan Chief Market Strategist and former BBC Economics Editor, joins Brewin Dolphin’s Guy Foster and Ben Gutteridge to discuss the market’s most pressing issues.
Ben Gutteridge, Guy Foster, Stephanie Flanders and Elliot De Haro
The major news this week has been the ambiguity over whether ECB president Mario Draghi is committing the currency union to embarking on quantitative easing or not. We have our own concerns about the efficacy of QE in general and in the Eurozone in particular. Stephanie feels QE is “much more likely and more necessary given trends in inflation expectations”.
For QE to become an effective policy it needs to be one which boosts demand. The official line is that QE will achieve that but as Stephanie says “It is a policy that supports recovery via exchange rates not bond yields.”
Exchange rate manipulation is a beggar-thy-neighbour policy. Devaluing takes market share of export markets while discouraging domestic production. In that sense it is a zero sum game which prompts all parties to expand their own savings while competing for each other’s demand. As Stephanie says “the BoJ is doubling down and another dramatic move in the yen could trigger RMB devaluation.”
Across the pond, Stephanie points out that the Federal Reserve has worked hard to establish the middle of next year as the likely start date for interest rate hikes. Such a stance affords them the flexibility to respond more fluidly to any surprises in data (be they positive or negative).
From a financial stability perspective Anglo Saxon economies want to see rate hikes in 2015 but as Stephanie cautions “they don’t want oil price falls to move rate hike expectations to the end of next year”.
Earlier this week Brewin Dolphin raised our own strategic guidance for European shares and in Stephanie’s view “JP Morgan see Europe as a good medium term opportunity as pessimism has gone too far”
But like us they are also sounding confident on the US where “Investors may well conclude that the US is still the only game in town. Even though it doesn’t look cheap, it is a better bet than many other parts of the world”.
-ENDS-
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