Central banks remain market-friendly

It is still unclear how big the growth impact of Brexit will be. In the meantime, the policy stance will remain dovish.

European Central Bank President Mario Draghi’s main message during the press conference following the bank’s July decision to remain on hold was that the ECB remains very much in wait-and-see mode for now. Still, should any negative fall-out from Brexit or any other shock on the outlook for price stability materialize, the bank is very much “ready, willing and able” to ease policy further. The fiscal mood in the Eurozone may also be changing. The cancellation of the penalty for excessive deficits for Spain and Portugal may be indicative of a move away from strict austerity towards more leniency. With an upcoming referendum on constitutional reform in Italy and next year elections in the Netherlands, France and Germany, it makes little sense to fuel the populist parties’ rhetoric and to risk a political overhaul in any of these countries.

The Bank of England took action last Thursday, cutting its benchmark interest rate for the first time in seven years to a record-low 0.25% and pledging to purchase more government and corporate bonds.

In the US, the Fed looks to be getting slowly ready to hike once more but we do not believe they will be ready enough in September. Our base case remains a December rate increase with two further rate hikes in 2017.

The Bank of Japan clearly disappointed by leaving most of its parameters unchanged, but it promised a comprehensive assessment of its policy by September, leaving the door open for more easing.

Valentijn van Nieuwenhuijzen – Chief Strategist and Head of Multi Asset – NN Investment Partners