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Financial Conditions, Inflation and Central Bank Shifts

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Seix Investment Advisors Perspective | Written by James F. Keegan and Perry Troisi


The last year has been interesting to say the least with the first half of 2017 a continuation of the “expect
the unexpected” theme. From Brexit and the Trump election to the snap election in the UK earlier this year,
things have not transpired as the consensus had anticipated. The financial markets have also followed
this pattern as the consensus view coming into 2017 called for the Trumpflation/Trumponomics pro-growth
agenda of tax reform/cuts, fiscal/infrastructure spending, and regulatory reform to engender a global reflation
that would result in higher long-term interest rates, a steeper yield curve, and a stronger dollar (remember
the consensus calling for the euro to head to parity versus the dollar?) that would facilitate the baton being
passed from central banks, thereby allowing policymakers to “normalize” monetary policy. The removal of
ultra-accommodative emergency monetary policy was expected to tighten financial conditions and increase
volatility. As you know, the consensus is usually wrong, but this year the inaccuracy of the consensus is one
for the record books. In fact, long-term interest rates are lower, the yield curve is much flatter, the dollar is
significantly weaker, financial conditions are looser in spite of two rates hikes, and stock and bond market
volatilities have hit record lows. >>READ MORE (523 KB PDF)

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