Boston - A few thoughts on the second half of 2020.
Here are a few thoughts as we head into the second half of 2020.
First off, the Federal Reserve. We're almost three months removed from the depth of the financial panic related to COVID-19, where the Federal Reserve's primary focus was on market functioning. Mission largely accomplished. A few markets still need some help, but the Fed's been very successful in getting markets to function better. Looking to the second half of 2020, I expect the Fed to focus on economic growth and getting inflation up to its target. So I expect the Fed to use a combination of yield-curve control, forward guidance and open-ended quantitative easing.
Second, the ECB. The European Central Bank had a slow start when the financial panic related to COVID-19 hit. However, they've come on strong recently with their PEP program — or Pandemic Emergency Purchase program — where they've recently increased the size of that. So a lot of monetary stimulus in Europe. In addition, on the fiscal front, a Franco-German agreement around increased coordinated fiscal spending in Europe and joint issuance is gaining momentum. Some are calling it Europe's Hamiltonian moment. I don't know if I'd go that far, but I do think it's progress in the right direction.
Third, geopolitical issues. Markets were so focused on COVID-19 in March, April and May that to some extent, they started to forget some of these issues. But the US-China relationship, China-Hong Kong, Brexit and the EU — as well as the upcoming US election — are all issues I expect the markets to focus on in the second half of 2020.
And then, finally, where to look for opportunity. I think emerging markets offer good opportunity. We have seen a broad rally across all markets in the world the past month or two. Emerging markets have been no exception. But they generally lag developed-market fixed income markets and developed-market equities. And so, with monetary stimulus from the Fed, ECB, and emerging market central banks, as well as a better fundamental backdrop than we had a couple of months ago, I think emerging market assets are a good place to be.