“With core inflation stopping at 0,7% in February, the ECB will plausibly continue to support the economy. We could see a 10 basis point (bp) cut in the deposit rate, which would thus reach -0,4% and this would still leave room for any further measures, including the introduction of negative interest rates with a tiered structure, on the model of what has been done by the Bank of Japan, or even a strengthening of the asset purchase program”. This is the opinion of Eugene Philalithis, manager of Fidelity International's FF Global Multi Asset Income Fund and FF Euro Balanced Fund, regarding the new monetary policy moves that the ECB president, Mario Draghi, should announce today.
“The market seems to have already partially priced in an intervention by the ECB – continues Philalithis – through a drop in bond yields, with Bunds in particular now close to the all-time lows of last April, and, to a lesser extent, the weakening of the euro, which, however, is also partly due to the strengthening of the prospects for the American economy. There is a risk that the ECB will disappoint the markets, but after the mistake made last December, the management of expectations has undoubtedly been more accurate”.
Furthermore, after a difficult start to the year for European banks, Philalithis expects that “the ECB will take sides in defense of the credit institutions of the region, emphasizing how the banks of greater systemic importance have already met, if not even exceeded, the stringent capital requirements set by supervisory authorities. Finally, it should not be forgotten that in addition to the ECB, the Bank of Japan (March 15) and the Fed (March 16) will also meet in the next ten days, while at the end of February the People's Bank of China had already decided on a 50bp rate cut ”.
Finally, as regards investment strategies, "in this context of low interest rates and divergent monetary policies, the search for sources of income requires a widely diversified and flexible multi-asset approach - concludes Philalithis -, with the aim of optimizing the risk-return profile of the portfolio and to cope with evolving market contexts. The FF Global Multi Asset Income Fund that I manage invests flexibly in 5 different asset classes to generate a target income of 10% per year. In this phase, the positioning that I have adopted sees a limited exposure to government bonds, which offer excessively modest returns. Instead, I am finding value in high-yield bonds and loans, whose performance is not very sensitive to interest rate trends”.
