Weak Inflation Should Prompt ECB to Hold Fast

Franck Dixmier | 18/01/2017
European Central Bank

Summary

Don’t expect the European Central Bank to announce any major policy change at its 19 January meeting; neither inflation nor job growth are strong enough for the bank to taper or stop its bond purchases. Yet despite Mario Draghi’s willingness to keep all options on the table, the ECB may soon reach its limits.

We do not expect the European Central Bank (ECB) to change its monetary policy this week; by staying the course, the ECB will be able to confirm its engagement with bond markets and its long-term impact on them.

This strategy is being driven primarily by the weakness of underlying euro-zone inflation – which, at 0.9 per cent according to the latest publications, remains far from the ECB’s medium-term objective of two per cent.

Furthermore, the positive growth dynamic evidenced by leading indicators is insufficient to change things significantly. In particular, job-creation numbers are too weak to generate any wage increases meaningful enough to sufficiently raise core inflation.

Against this backdrop, ECB President Mario Draghi’s speech on 19 January must be seen in the light of the monetary-policy meeting that preceded it: We expect he will confirm the central bank’s dovish bias and keep open the possibility of resorting to any and all options the situation might make necessary.

However, ECB policy is approaching its limits as time goes by. In our opinion, the threshold of holding more than 33 per cent of a country’s outstanding debt is one that the central bank will refuse to cross, but it is unlikely that 2017 will see the bank either taper or begin halting its asset-purchase program.

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. Equities have tended to be volatile, and unlike bonds do not offer a fixed rate of return. Emerging markets may be more volatile, less liquid, less transparent and subject to less oversight, and values may fluctuate with currency exchange rates. Bond prices will normally decline as interest rates rise. Below investment grade convertible and fixed-income securities involve a greater risk to principal than investment grade securities. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice. References to specific securities are not intended to be, and should not be interpreted as an offer, solicitation or recommendation to purchase or sell any financial instrument, an indication that the purchase of such securities was or will be profitable, or representative of the composition or performance of any AllianzGI product. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This material is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association]; Allianz Global Investors Korea Ltd., licensed by the Korea Financial Services Commission; and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. GrassrootsSM Research is a division of AllianzGI Research. Data used to generate GrassrootsSM Research recommendations is received from reporters and field force investigators who work as independent contractors for broker-dealers. Those broker dealers supply research to AllianzGI and certain of its affiliates that is paid for by commissions generated by orders executed on behalf of AllianzGI’s clients. Source of all data (unless otherwise stated): Allianz Global Investors as at November 2016. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Allianz Global Investors is a trademark, registered in various countries throughout the world, including the United States. © 2017 Allianz Global Investors.

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Franck Dixmier

Global Head of Fixed Income, CIO Fixed Income Europe
Franck Dixmier is Global Head of Fixed Income and Chief Investment Officer Fixed Income Europe. Franck is a member of the Global Executive Committee at Allianz Global Investors. He joined Allianz Group in 1995.

Hospital Capex Stable Despite Threat to Obamacare

Phil Simon | 23/01/2017
Healthcare, hospital, medicine

Summary

With new political leadership in Washington DC seeking to repeal the Affordable Care Act, health-care providers are having difficulty planning ahead. But our proprietary Grassroots℠ Research shows that hospitals, capital expenditures should remain steady in a year of uncertainty.

Key takeaways

  • “Obamacare” expanded health-care coverage and bought more revenue to hospitals
  • The US election’s outcome has not yet affected strategic planning for hospitals or delayed big-ticket capex

More patients mean more hospital capex

One of the most contentious issues in the recent US presidential election was the future of the Affordable Care Act (ACA) – frequently referred to as “Obamacare”. Since becoming law in 2010, the ACA significantly expanded health-care insurance coverage in the US, which subsequently brought more revenue to hospitals. These higher revenues, in turn, led to additional capital expenditures (capex) on items such as information technology, beds and operating-room equipment.

After the Republican party’s sweep in the 2016 US elections, which increased uncertainty about the outlook for the ACA, GrassrootsSM Research interviewed 25 hospital representatives to find out if the upcoming change in political leadership was driving any shifts in their near-term capital-spending plans.

Moving forward with 2017 spending plans

For almost all of the hospitals represented in the study, the election’s outcome has not affected strategic planning or delayed big-ticket capex purchases, since most hospitals either were already committed to their current budgets or would not start making new plans until the summer of 2017. As one source explained, “We’re already moving forward with our 2017 plan, and there are no delays. No one is moving their dials quite yet. The political situation is way too fluid still.”

Overall, most sources expect hospital capital spending to move higher in 2017, or to stay flat on a year-over-year basis. Commenting on the study, Michael Dauchot, a senior health-care research analyst at Allianz Global Investors, said, “Compared with overall fears about sudden change, the results of the study were positive and supportive of a stable capex environment for hospitals.”

Post-Election, Most Hospitals Haven't Changed Spending Plans

More than half of the hospital representatives surveyed said their year-over-year capex plans were unchanged, while more than a quarter expected to spend more in the coming year.

Post-Election, Most Hospitals Haven't Changed Spending Plans

Source: GrassrootsSM Research as at December 2016.

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. Equities have tended to be volatile, and unlike bonds do not offer a fixed rate of return. Emerging markets may be more volatile, less liquid, less transparent and subject to less oversight, and values may fluctuate with currency exchange rates. Bond prices will normally decline as interest rates rise. Below investment grade convertible and fixed-income securities involve a greater risk to principal than investment grade securities. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice. References to specific securities are not intended to be, and should not be interpreted as an offer, solicitation or recommendation to purchase or sell any financial instrument, an indication that the purchase of such securities was or will be profitable, or representative of the composition or performance of any AllianzGI product. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This material is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association]; Allianz Global Investors Korea Ltd., licensed by the Korea Financial Services Commission; and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. GrassrootsSM Research is a division of AllianzGI Research. Data used to generate GrassrootsSM Research recommendations is received from reporters and field force investigators who work as independent contractors for broker-dealers. Those broker dealers supply research to AllianzGI and certain of its affiliates that is paid for by commissions generated by orders executed on behalf of AllianzGI’s clients. Source of all data (unless otherwise stated): Allianz Global Investors as at November 2016. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Allianz Global Investors is a trademark, registered in various countries throughout the world, including the United States. © 2017 Allianz Global Investors.

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Phil Simon

Vice President, Research Associate
Mr. Simon is a research associate and a vice president with Allianz Global Investors, which he joined in 1993. As a member of the firm’s Grassroots℠ Research team, a division that commissions proprietary and customized investigative research, he is responsible for managing market research projects for asset-management professionals. Mr. Simon was previously a portfolio analyst with the US Large Cap Growth team, where he conducted research on portfolio holdings. He has 22 years of investment-industry experience. Earlier in his career, Mr. Simon was a registered representative for Amev Financial Group (now Fortis) and a trust administrator for First Trust Corporation. He has a B.A. in business administration from Fort Lewis College.
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