Central banks in retreat - Shifting rates and currency views


Key global central banks have spent the past two months in retreat, signalling pauses or delays to both rate rises and balance sheet unwinds. This has underpinned a strong start to equity markets in 2019.

This month, we take a look at the dramatic shift in expectations around central bank tightening in the year ahead. What started with the US Federal Reserve has spread like wildfire to the European Central Bank, the Bank of Canada, the Bank of England, the Bank of Japan and the Reserve Bank of Australia. Prospects for a sharp move higher in yields have been forestalled for now, while the outlook for currencies has also been altered.

Our 2019 outlook embodied expectations that central banks would pause and a further escalation in geo-political risks could be avoided. Thus, we remain cautiously engaged with risk, while ensuring diversification through defensive government bonds and alternative assets. The key issue for clients is whether the global pause from central banks, and renewed stimulus in China, has elongated the latter stages of this macro cycle. We think it has.