Tom Clarke, co-portfolio manager of the William Blair Macro Allocation Fund, highlighted in an appearance on Bloomberg Television’s “What’d You Miss?” that central banks around the world have recently changed their tone amid ongoing low bond yields and relatively low volatility.
He explained that the European Central Bank and several other central banks, including the Bank of Canada, Reserve Bank of Australia, Reserve Bank of New Zealand, and the Bank of England, have recently communicated hawkish statements.
Clarke added, “Central banks are doing their best to increase the supply of certainty and decrease the supply of uncertainty, but they’re kind of painting themselves into a corner by doing that because the market hangs on to their every word now.”
Despite several short positions in currencies where central banks have issued hawkish statements, Clarke said he’s not necessarily concerned because these positions are balanced by long emerging markets currency exposures, which offer much larger medium-term opportunities. And he believes the big currency opportunity in the developed markets is to be “meaningfully” short the U.S. dollar.
But Clarke said monetary and fiscal policies, which influence currency prices, are going to remain broadly supportive of the U.S. dollar for a little while longer. As a result, Clarke said the portfolio’s short U.S. dollar exposure has been muted. “Ultimately, that will swing around, and I think the market is probably not that well prepared for substantial euro gains,” he said.
In regards to the overall United States market, Clarke also discussed his views on the so-called Trump trade, which he says has been unwound as the market observes the slow, labored progress of policy channels. He believes that issues with greater support, such as infrastructure spending or modest tax cuts, may have a higher chance of coming to fruition and concludes that, “any stimulus to the U.S. economy will likely be quite big and rather late.”
(Segment starts at 27:45)