Pictet Smiles On Emerging Markets, US; Adds To Gold As Central Bank Printing Presses Roll On

Tom Burroughes

5 August 2016

, which has been the only institution keeping the currency bloc together, may start to run out of ammunition. We are also sceptical about the efficacy of further monetary stimulus in the euro area,” he said.

Paolini said the firm has an overweight exposure to the UK and Japan, as it expects a policy stimulus in both countries (his note was written just before the BoE's announcement on its decision).

“Most developed market government bonds remain at extreme valuations. Indeed, some became even more expensive in the wake of the Brexit referendum as investors anticipated further monetary policy stimulus to mitigate the poll’s economic fallout. As a result, we have kept our positioning on these bonds unchanged, staying underweight on all except for US Treasuries. Only the US retains any residual value at the long end, which we view as one of our last safe haven assets. Even the case for long-dated Treasuries isn’t clear-cut after yields collapsed during the month,” he said.

“The US economy’s fundamentals are increasingly positive. Growth momentum has improved, as has consumption, more than offsetting any weakness in manufacturing activity. Wage growth, meanwhile, has been accelerating. The Fed’s own measure shows wages have been rising at 3.6 per cent a year, which is broadly around the Fed’s target levels,” Paolini said.

“Nonetheless, the market is ascribing only a 28 per cent probability to a Federal Reserve rate rise in September and only a 50 per cent chance in December,” he said.

“Finally, we continue to overweight gold bullion as a long-term hedge against significant monetary debasement, which seems an inevitable ultimate consequence of ever more aggressive central bank policy. Especially now that experiments in direct monetisation of fiscal spending no longer seem to be anathema to policymakers,” he added.