Tailwinds to become headwinds
After a strong first half for many asset classes, investors will become nervous whether the double digit returns could be sustainable or not. Regarding the upcoming rate rises from the major central banks, it become clear that the tailwinds that support markets to become headwinds for the next quarters. The Fed and the European Central Bank have both recently released the minutes of the meetings that were held in June. They were quite different on a number of levels but the one thing that really struck us was the difference in their confidence. The ECB seems quite assured about the economic outlook and the path that policy has to take as it adjusts to the brighter future. In contrast, the Fed seems to be lacking confidence on issues such as the relationship between the unemployment rate and inflation as well as the relationship between rate hikes and wider financial conditions. The ECB is inching towards policy normalisation while the Fed might have got ahead of itself on rate hikes. But also because financial markets like to have confidence that central banks know what they are doing and can go about their policy with a clarity of thought and purpose. Within this context, analysts mulled about the changes in rates and effects to various asset classes, emerging markets.