Global markets: Five issues to watch

Weekly Market Compass: Turkey’s woes continue, the US and China will talk about trade (again), and more

Time to read: 6 min

From the crisis in Turkey to upcoming remarks by the Federal Reserve (Fed) Chair, there is no shortage of issues for investors to watch this week. Below, I highlight five key areas that markets will be monitoring.

1. Will Turkey’s woes spread across emerging markets?

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Assessing the expanding universe of triple-B rated corporate debt

Does higher issuance equal higher risk?

Time to read: 3 min

In the midst of all the geopolitical drama of the past year, it was easy to overlook a developing story in triple-B rated bonds — issuance has exploded. According to Morgan Stanley, there is now $2.5 trillion of triple-B rated debt outstanding, nearly double that of five years ago.1 Now, the big question is whether rising leverage is a sign of increasing risk for investors, as companies may become vulnerable to downgrades. At Invesco Unit Trusts, we see this growth (and accompanying volatility) in triple-B bonds as an opportunity for strategies that are designed to identify companies with strong fundamentals and hold their bonds to maturity — like unit investment trusts (UITs).

What is driving the surge in issuance? 

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It’s official: US Treasury to launch a 2-month T-bill

Invesco Fixed Income does not anticipate significant market disruption due to the new T-bill offering

Time to read: 2 min

A new 2-month Treasury bill (T-bill) will launch in October, according to details announced by the Treasury on Aug. 1. The new T-bill will share a schedule with the 1-month T-bill, which is currently auctioned on Tuesday and settled on Thursday of the same week. Then on Dec. 6, both bills will transition to a Thursday auction and settlement the following Tuesday. Invesco Fixed Income believes that this transition period should allow investors to become familiar with the new bill and help minimize the possibility of disruption at the short end of the Treasury bill yield curve.

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Selecting an alternative strategy

How to incorporate alternatives into a portfolio

Time to read : 4 min

I’ve written this summer about the potential benefits of alternative investments. Let’s assume that readers of my previous blogs agree that my ideas have some merit and it is time to diversify into alternatives (alts). The devil is always in the details. Of all the different alt funds available, which is best for a given investor? And where does it fit in a portfolio? In this blog, the fourth in my series explaining the basics of alts, I will suggest a process that may help investors select the best alternative strategy for their objectives.

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What currency pressures in Turkey and other countries may mean for investors

Weekly Market Compass: The UK, China and Iran have also experienced currency pressure

Time to read: 4 min

Activity in currency markets has more than tripled in the last two decades. Between 2001 and 2016, global turnover in currency markets rose from $1.2 trillion to $5.1 trillion,1 and the geopolitical disruption of the last two years has increased currency activity even further. Last week brought several significant examples of this trend in the UK, China, Iran and — most dramatically — Turkey. Is this a sign of more disruption to come?

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What could a trade war mean for US macro fundamentals?

The biggest risk could be a tightening of financial conditions

James OngTime to read: 3 min

The growing prospect of a global trade war presents major consequences for global markets, and the implications are difficult to assess. Because the past 30 years have consisted of generally expanding trade liberalization and global trade (shown in Figure 1), we are left with limited information on how financial markets would likely respond. Below, I discuss Invesco Fixed Income’s view of how the situation could affect US macro fundamentals, and I highlight the potential impact on fixed income markets.

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MLPs: A light at the end of the pipeline

Master limited partnerships may be poised for a turnaround

Time to read: 4 min

The master limited partnership (MLP) asset class has experienced considerable volatility since 2014, with many individual securities trading well off previous highs. However, the Invesco Real Estate team believes there has been a dislocation in MLP pricing, resulting in value and opportunity in the space.

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Currency outlook: We expect US dollar appreciation due to trade tensions

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar

Neutral. Trade tensions have resulted in a partial change to our view. We have revised our expectation for a broad US dollar weakening trend, now believing it may appreciate versus currencies linked to China as trade tensions increase. At this point, it appears likely any increase in tariffs may adversely affect valuations of Asian currencies (excluding Japan) such as the Chinese renminbi and Korean won.

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Interest rate outlook: Strong US GDP growth, trade worries may keep rates range-bound in 2018

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral. We expect US rates to stay range-bound due to growing trade worries and above-trend growth. Assuming no large trade-driven shocks, US growth is likely to remain supported by stronger energy sector capital expenditures, strong job growth and consumption. We expect 2018 gross domestic product (GDP) growth of around 2.8%, one percent above our estimate of the long-term sustainable trend. Core inflation continues to be benign, and we expect it to peak in the next two months at around 2.3%.

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How factors may help bond investors reach their goals

The quality and value factors may help investors target specific risk and return objectives

Time to read: 3 min

In recent years, factor-based investments have become increasingly popular for equity investors. Often missing from the discussion, however, is the concept of fixed income factor strategies. At Invesco Fixed Income, our view is that bond investors can potentially benefit from a factor-based approach. We’ve launched a new suite of exchange-traded funds focused on two factors — quality and value — that we believe may help investors reach their objectives.

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