Need to Know Buzzwords...The BoE’s Stimulus...The Met’s Fashion Frontman

Insights on markets, industries and the global economy [Goldman Sachs] [BRIEFINGS] August 08, 2016 The Buzzwords You Need to Know Bots. Space congestion. Net metering. Immersion. These are just a few of the latest buzzwords making the rounds, but Goldman Sachs Research analysts say the terms reflect some big themes and far-reaching changes (quite literally, in the case of space congestion). In a series of new videos, we asked the analysts -- who know the lingo and the underlying industry dynamics -- to explain several hot terms in a minute or less, starting with OLED, craft and machine vision. Stay tuned for more in the coming weeks. [Watch videos] SHARE: [twitter] [facebook] [LinkedIn] [email] Briefly... on the BoE's Stimulus Package The Bank of England (BoE) last week announced a cut to interest rates, the first in seven years, making them the lowest in the Bank's 322-year history. The cut, in conjunction with a series of further easing measures, is designed to stimulate the UK economy following the Brexit vote. Goldman Sachs Asset Management's EMEA Chief Executive Andrew Wilson discusses the background to the decision and considers its potential effects on both the UK economy and investment. Did the referendum make the BoE's action inevitable? Andrew Wilson: Not the referendum in itself, but rather the sharp downturn in sentiment. We still haven't seen hard data, but the PMI survey results show that expectations are for reduced economic activity. The Monetary Policy Committee's role is to anticipate a slowdown and put policies in place to ensure stimulus is there when it's needed. The big question is whether the demand is for credit rather than supply. All the BoE can do is ensure there's money available to facilitate activity; whether that takes place or not, we'll have to wait and see. What was more meaningful: the rate cut itself or the package of further easing policies? AW: The package is the important thing, not any one element of it. The rate cut was fully priced in by the morning of the announcement, and as it was important for the BoE to positively surprise the market, the other measures had a bigger impact. The extension to quantitative easing or "QE" and an additional 10 billion pounds of corporate bond purchases were not in themselves a surprise, but both were larger than expected. The Term Funding Scheme, giving banks cheap four-year funding in exchange for lending, was also an important statement: at 100 billion pounds, the TFS is also bigger than expected and also much more generous than its predecessor, the Funding for Lending Scheme. All banks have to do to qualify is show they're not shrinking their balance sheets -- there's no distinction between different kinds of lending. What do you expect the impact to be, in markets and on the economy? AW: The immediate result was as you'd hope: Gilt yields came down, credit spreads tightened and the pound weakened. We'll have to wait for the economic impact. The medicine has been administered, but whether that translates into more economic activity -- more house-buying, more investment -- will not be clear for some time. From an investment point of view, this is not good news for pensions as the deficit situation will worsen if rates continue to decline. To the extent that these policy actions decrease the probability of a recession, they create a more "risk-on" environment where people are more comfortable owning high-yield bonds or emerging market debt, and other riskier assets offering the potential for better returns. What should investors be focusing on in the weeks ahead? AW: Investors should focus on the real economic data and whether evidence of a slowdown emerges. They should also look for possible offsets, for example the potential beneficial effects of a weaker pound on exports or tourism. There will be winners and losers, especially in the equity market, and investors will be looking to identify them. Is there a risk of unintended consequences? AW: The BoE has done a lot to offset the potential negative effects of these policies. Very low rates put pressure on the banking sector, for example, by eroding net interest margins, but the larger-than-expected TFS should mitigate that. Experience of other QE projects has shown that easing can have negative consequences for the banking system, but the TFS should ensure that there is a healthy UK banking industry, with more lending to individuals and consumers as a result. The longer-term issue is the UK's large current account deficit. Do interest rates get so low that foreign investors are deterred from putting capital here? The exchange rate coming down provides an offset to that dynamic but we'll have to wait and see how the trade balance holds up. Visit [Goldman Sachs Asset Management online] for more insights. Andrew Bolton: The Intersection of Fashion, Art and Technology The Costume Institute at New York's Metropolitan Museum of Art has been home to some of the most popular exhibitions in the museum's history, including Alexander McQueen: Savage Beauty and China: Through the Looking Glass. Curator in Charge Andrew Bolton is the visionary behind these exhibitions, the latest of which is Manus x Machina: Fashion in an Age of Technology. As part of the firm's speaker series, Talks at GS, Bolton discussed the inspiration for the exhibit (open through September 5), as well as the future of fashion, the power of technology and his work in championing fashion as art. Above: Andrew Bolton talks with Kim Posnett of Goldman Sachs. [Watch video] SHARE: [twitter] [facebook] [LinkedIn] [email] Goldman Sachs Media Highlights CNBC - August 1 [Goldman Sachs Research offers its medal predictions for the Rio Olympics] CNBC - August 2 [Peter Oppenheimer on how developed market stocks could move given a "fat and flat" trading range] Business Insider - August 4 [Goldman Sachs employees swing for the fences in support of Harlem RBI] CNBC - August 5 [Jan Hatzius discusses the US jobs report for July] (4:52) [Subscribe] The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. 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