The Intelligence Report

19 Jun 2017

  • US climate policy – exiting the Paris Accord and risking a two-speed economy – explaining how this decision is already starting to have unexpected consequences.
  • Fed balance sheet runoff and the outlook for MBS – exploring the implications for mortgage-backed securities of revealed plans to taper the reinvestment of MBS cash flows.

Most of the articles in the Intelligence Report deal with unexpected events, and their market implications – areas in which we hope our insights will be of value to our readers. We tend to eschew coverage of widely expected developments, particularly when we judge that we have little new to add to the existing market debate. Both articles in this week’s edition cover events which, while unsurprising in themselves, still carry something of a twist, which we think merits comment.

The U.S. administration’s recent decision to withdraw from the Paris Climate Accord did not come as a surprise. However, as Helena Vines Fiestas, Head of Sustainable Research, explains, the announcement is already starting to have quite unexpected consequences, which may have significant future implications for climate change, and for our investment approach.

Similarly, last week’s Federal Open Market Committee (FOMC) meeting announcements, and recent Federal Reserve (Fed) speeches, have started to shed some light on the shape of the already signalled intention to gradually normalise the size of the Fed’s balance sheet. John Carey explores the implications for mortgage backed securities of revealed plans to taper the reinvestment of MBS cash flows, and explains how the inherent structural flexibility may be used to help guide financial conditions.

Two distinct stories linked by the common theme – that being surprising non-surprises.

Download to read more