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The European Central Bank's (ECB) suggestion that it would cut rates further into negative territory contributed to European banking sector underperformance. We are all familiar with the rest of the story: Oil plummeted to new lows, the Bank of Japan (BOJ) surprised markets by taking its interest rate on excess reserves negative for the first time ever, and a further massive sell-off in bank equity and debt, and in risk assets more broadly, ensued. Investors seemed underwhelmed with the Fed's first rate hike, which had been well-telegraphed, but China's leadership allowing faster currency depreciation in the first few days of this year – which may in part have been a reaction to the Fed rate hike – sparked another major risk-off move in financial markets resulting in a considerable tightening of global financial conditions. Much has occurred since our December 2015 forum.
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In addition to hearing from PIMCO's regional portfolio committees from around the globe, we were fortunate to benefit from the perspective of PIMCO's newly created Global Advisory Board, consisting of its chair Ben Bernanke, Gordon Brown, Anne-Marie Slaughter, Ng Kok Song and Jean-Claude Trichet, which held its inaugural meeting on the day before our forum. Still, the events that have unfolded since the Federal Reserve's first rate hike in almost 10 years last December easily surpassed the imagination of most central bankers, observers and investors alike.Īnd so there was much to talk about when PIMCO's investment professionals gathered at our Newport Beach office in early March for our quarterly Cyclical Forum to deliberate and update our economic and market outlook for the next six to 12 months. Navigating an environment of tepid nominal growth and near-zero or negative interest rates was never going to be easy.