UBS House View Monthly

The UBS House View Monthly presents the latest version of the UBS Investment House View, assessing the impact of current economic trends on asset classes and portfolio allocation.

UBS House View Monthly

Taking away the punchbowl?

Even as the temperatures outside cool, the debate among policy makers has become more heated. Bank of England Governor Mark Carney has gone so far as to suggest that the path to negative rates was the “wrong” route to take. The Bank of Japan (BoJ) decided at its September meeting to refrain from pushing rates deeper into negative territory. At the same time it unveiled novel stimulus policies, which suggests that sub-zero rates may be going out of fashion.

A consensus has begun to emerge that a world of more active fiscal policy, in which finance ministers take greater charge of economic management, may lie on the “other side” of the monetary attempts to stimulate growth. Even in Europe, the idea of deficit spending is becoming less taboo. European Commission President Jean-Claude Juncker is reportedly considering plans to relax and simplify the Stability and Growth Pact, the set of fiscal rules designed to limit spending among EU member countries.


The prospect that debates about the efficacy of monetary stimulus might lead to the punchbowl being taken away has provoked rising market volatility after a period of summer calm. Importantly for portfolios, it has also resulted in rising correlation between stocks and bonds. Correlations are now close to their highest levels in five years, making portfolios more vulnerable to increased short-term volatility.

One investor response has been to seek safety in cash, with average investor proportions of it rising to 5.5% from 5.4% in the most recent BAML Global Fund Manager Survey.

Mark Haefele
Global Chief Investment Officer Wealth Management


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