Halister News

(Bloomberg) -- Fed will raise interest rates only once in the latter part of the year and may even keep policy unchanged and start communicating possibility of cutting rates if U.S faces recession risks, Jean-Louis Nakamura, Chief Investment Officer at Lombard Odier says in interview.

• Cites mkt pricing for Dec. Fed rate cut which shot up to 20% on June 27 after the Brexit results; it has since been erased
  • Fed rate cut is not base case scenario for Lombard
• FOMC meeting, and Yellen’s press conference before Brexit acknowledged that structural factors may be behind low inflation environment; means less room for normalization policy
• Current monetary policy in the U.S. is not too accomodative
• Expects one hike by Fed this year at best, which means broader room for Asian currencies to catch up a bit
• NOTE: Fed’s Powell said on June 29 that long-run interest rates may be lower than expected and the central bank has been lowering forecast as it learns more about potential growth
• NOTE: Fed’s Mester said on July 1 that the Fed is monitoring closely impact of Brexit on the U.S. economy including any delay in inflation’s return to 2% and dampened export growth

• JAPAN:
• Lombard holds Japanese govt bonds on expectations yields may fall further into negative, and also to buffer equity positions during events such as Brexit vote
  • Japan 20- and 30-yr bonds will continue to yield close to zero or even negative, at least until there’s significant coordinated global action
• Expects BOJ to embark on innovative ways to expand QE program at July meeting; measures may include:
  • Expanding purchase program to 90t yen ($890b) per year
  • Increasing equity purchases
  • Cutting policy rates to minus 20 bps
  • Yen may drop to 108-112 per dollar after BOJ’s easing
• USD/JPY currently -0.9% at 100.85; 20-yr JGB yield is at 0.015% after briefly touching zero; 30-yr yield reaches record low of 0.03% while 10-yr hit an all-time low of -0.265%
• UST 10-yr yield fell to record low of 1.3465%
• NOTE: BOJ plans to buy about 3t yen in exchange-traded funds and 90b yen in real-estate investment trusts a year, according to a Jan. statement from the central bank
• NOTE: Yen’s surge on Brexit puts pressure on BOJ to ease; see research roundup
• NOTE: Lombard Odier’s total client assets are around $224b as of end-Dec. 2015