Weekly outlook: When will the US Fed stop quantitative tightening?

The key events for UK wealth managers for the week starting 18 March

Brexit is once again set to block out a packed week of economic data and central bank policy decisions with Theresa May pushing for a third vote on her Brexit deal. However the monetary policy committee meetings from the Federal Reserve and Bank of England are not expected to provide much of a distraction from politics, as “neither is expected to do anything,” said AJ Bell investment director Russ Mould.

Miton rounds out a busy period of reporting for fund groups with its final year results.

Federal Reserve policy decision

The key thing to watch for will be whether the Fed provides any clarity on when it plans to stop quantitative tightening (QT), said AJ Bell’s Mould. The Fed has reduced its balance sheet from $4.5trn to $4trn but with rates on pause and the imminent end of QT it is “not going to get back to anywhere near where it was”.

Chair Jay Powell has been dropping hints that the US central bank will stop shrinking its balance sheet later this year, despite the fact that unemployment is at a 40-year low and wage growth stands at a 10-year high, which Mould thinks is down to the fact stock markets took a walloping last year.

“With 70% of household assets in financial markets they probably don’t want to see the stock market collapse because it will impact on consumer spending power.”

Hamstrung by the ongoing Brexit shenanigans, chances that the Bank of England will raise rates on Thursday are virtually zero. There is a slim possibility that one or two MPC members may break rank and vote against the majority that want to keep rates where they are though Mould believes this is unlikely.

Miton results

Miton assesses the damage in its final results on Monday (18 March). The Aim-listed manager previously predicted more than £1bn of net inflows for 2018, a 106% increase but analysts were put off by the steep decline in inflows in the last quarter, which were only £92m, significantly lower than the £300m range in the previous three quarters.

Peel Hunt’s Stuart Duncan downgraded its FY19 forecasts by 21% and reduced the target price for Miton to 60p from 73p.

David Barron, chief executive officer, said at the time the firm is “well placed” as it enters 2019, despite uncertainties in global stock markets.

Meaningful Brexit vote take three

Theresa May will try her luck with MPs a third time to back her Brexit deal in the coming days.

Despite the deal being rejected by 149 votes last Tuesday the prime minister has seized upon an opportunity to push ahead with another “meaningful vote” after MPs voted overwhelmingly to delay the UK’s exit from the European Union, which could delay Brexit by at least another three months.

“Intriguingly, the EU’s response to the request for an extension, whichever way it goes, might actually help her deal to be passed,” said Janus Henderson Global Bonds portfolio manager Bethany Payne.

“If the EU does not offer an extension, it will be good for her deal as it will likely pass given the limited choices on the table,” she said. “If it offers a long extension, it is also potentially good for the deal, making it more likely to pass given the complications of the UK having to participate in the European Parliamentary elections in May, as well as the fact that a long period could dilute the chances of Brexit happening at all.”

A Brexit extension now seems “probable” said Anthony Willis, investment manager in the multi-manager team at BMO Global Asset Management, but so too does the prospect of prolonged uncertainty, which is “not good for the economy or for our collective sanity”.

He said: “It seems we have moved further away from ‘no deal’, yet the Prime Minister still refuses to accept her deal is dead and will be working very hard over the next few days to convince members of her own party and the DUP that her deal is the only option to deliver Brexit. Next week will give us some more short-term certainty, but the endgame could still be some time away.”

If May loses the vote again by a narrow margin a fourth vote might be on the cards, Payne added.

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