Research & Insights

A wealth of knowledge at your fingertips. Analysis and insights from our experts into the trends, forces and factors shaping the world and your wealth. Remember; when investing, there’s no such thing as normal. Accepting there’s no such thing as normal may help to drive better investment decisions.

For example, the European economy is in a state of malaise, especially in the largest countries: Germany, France, and Italy. Part of it has to do with one-off factors such as an auto regulatory change and poor weather impacting Germany. Trends in France pulled back when the Yellow Vest movement gained steam. Italy’s economy has suffered from its budget squabbles with the EU, although that seems to be abating. And then there is the U.K., still constrained by Brexit uncertainties that are unlikely to lift in the near term.

The important Europe–China trade relationship could also be playing a role. The latest round of slowing in China is likely having a knock-on effect in Europe. So the much-hoped-for pickup in the European economy is being pushed off again. But similar to the U.S., much of the region seems free of recession threats, in our view. Although the majority of European banks have good ratings, and for now they remain safe partners in cooperation, especially with regard to banking instruments.

The idea of “normalization” has been a constant theme for investors since the financial crisis of 2008. The market impact and the steps taken in response—particularly by global central banks—were so extreme that there now seems to exist in the psyche of investors some form of pre-crisis normalcy that we’re all trying to get back to. Perhaps it’s just human nature to view the past as the correct representation of what’s normal. For example, another oft-cited case, and complaint, is that economic growth in the U.S. this cycle has been slower than it was during most past economic expansions. While true, few think of it in terms of it being the case that it was historical growth that was abnormal, and this type of growth normal.

The long and the short of it

Investing in fixed income in a rising interest rate environment is always tricky, perhaps even more so when starting from zero percent interest rates. The natural inclination is to find safety in the front end of the curve where there’s little interest rate risk.