Tags: Robeco | Fed | Rate | Call

Dutch Money Manager Robeco Sticks to Fed Rate Call

Wednesday, 15 Oct 2014 07:15 PM

The Federal Reserve will probably raise borrowing costs in the second quarter of next year even though Vice Chairman Stanley Fischer indicated a slowing global economy could delay any rate increase, according to Dutch money manager Robeco Groep NV.

“The chance the Fed will hike is very high, probably still in the second or late in the second quarter,” Peter Van Der Welle, a strategist at the Rotterdam-based asset manager, said. “The strong improvement in the labor market will put the Fed eventually into action.”

The International Monetary Fund earlier this month reduced its forecasts for 2015 global growth, escalating Fed officials’ concern that deteriorating expansions abroad and a stronger U.S. dollar could hurt exports and damp inflation. Rates on federal fund futures show the likelihood of a September 2015 rate increase dropped to 46 percent from 56 percent on Oct. 10, and 67 percent two months ago, according to data compiled by Bloomberg.

About $744 billion was erased from U.S. equities from Oct. 8 to Oct. 13 amid concern slower global growth could hurt North America’s economy as the Fed withdraws stimulus efforts. Germany, Europe’s biggest economy, cut its 2014 growth outlook to 1.2 percent from 1.8 percent on Tuesday and investor confidence fell to the weakest level in two years as recession concerns mount.

European Rebound

“Our base view is the Fed will hike but the path will be very moderate,” Van Der Welle said in a phone interview on Tuesday. “They really want to err on the side of caution there, not killing the recovery.”

Companies in the U.S. hired 248,000 workers in September, Labor Department figures showed earlier this month, helping to push the unemployment rate down to 5.9 percent, the least since 2008. Robeco Groep, which has more than $280 billion in funds under management, hasn’t changed its estimate for when the U.S. will raise rates, Van Der Welle added.

When it comes to Europe, the money manager is underweight German government bonds and overweight stocks, Van Der Welle said. It expects the 18-nation Euro bloc’s economy to rebound in the fourth quarter with the aid of a weaker currency and credit easing by the European Central Bank. Van Der Welle said in an Oct. 7 report that “markets might be heading for a wobble” and that Robeco had reduced its overweight position in global equities.

Bond Buying

German 10-year bond yields dropped 5.7 basis points on Tuesday to 0.838 percent, the lowest since Bloomberg began compiling data in 1989. Investor confidence decreased for a 10th month in October, the ZEW Center for European Economic Research said earlier this week, and ZEW President Clemens Fuest said he hasn’t ruled out a technical recession.

Van Der Welle says the asset manager doesn’t “think Europe is heading for a recession.” “We think eventually rates will go up there,” the former researcher at Netherlands’ central bureau of statistics said.

At the IMF’s annual meetings in Washington last week, ECB President Mario Draghi signaled again that he intends to expand the central bank’s balance sheet by as much as 1 trillion euros ($1.3 trillion) to stave off deflation.

More than 60 percent of respondents in Bloomberg’s monthly survey say Draghi’s plan to steer the ECB’s balance sheet toward early-2012 levels is set to fall short and a growing number predict he’ll resort to large-scale government-bond buying. Two- thirds are unhappy with the lack of details for an asset- purchase program that will start this month after the ECB declined to say how big it will be.

The euro has declined 7.2 percent against the dollar in the last six months. The weakening currency and Draghi’s reflation policies, along with signs there may be a truce between Russia and Ukraine, should boost sentiment and help the bloc to recover, Van Der Welle said.

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The Federal Reserve will probably raise borrowing costs in the second quarter of next year even though Vice Chairman Stanley Fischer indicated a slowing global economy could delay any rate increase, according to Dutch money manager Robeco Groep NV.
Robeco, Fed, Rate, Call
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2014-15-15
Wednesday, 15 Oct 2014 07:15 PM
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