Highlights Day 4: The Fed's pace, European bond prospects

NEW YORK (Reuters) - Dawn Fitzpatrick of UBS Asset Management said the Federal Reserve would likely raise interest rates next month and only twice next year, while Steven Tananbaum of GoldenTree Asset Management said European corporate bonds were relatively unattractive.

Larry Hatheway of GAM Investment Solutions said the rise in U.S. Treasury yields was durable and had further to go, with the Fed likely to tighten at a faster pace than the market had priced in.

Didier Saint-Georges of Carmignac Gestion said a cut in U.S. corporate tax rates would significantly boost companies’ net earnings in the world’s largest economy and also draw in foreign money that would push the dollar higher.

John Doyle of UOB Asset Management said bonds were in for a tough ride in the first half of 2017 as U.S. President-elect Donald Trump’s plans to boost fiscal spending could stoke inflation around the globe.

On Thursday, those were some of the highlights from Day 4 of the Reuters Global Investment Outlook Summit, where money managers shared their best investment ideas and opined on topics such as the impact of Trump’s presidency on U.S. financial markets and the direction of stocks and interest rates in 2017.

Barry Ritholtz, chief investment officer of Ritholtz Wealth Management

Ritholtz said about President-Elect Donald Trump’s speed and capacity to learn on-the-job: “I think the single biggest lesson he either learned or should have learned since the election is when he gave a very calm and rational victory speech. Markets were down 5 percent overnight, the Dow was down 800 points - the futures - and suddenly, that reversed. That lesson was, ‘Hey, if I’m not a lunatic and I act like a responsible adult, I could get through this’.”

Dawn Fitzpatrick, global head of equities, multi-asset and the O’Connor hedge fund businesses at UBS Asset Management

Fitzpatrick said the Fed would likely hike rates at its Dec. 13-14 policy meeting and that, while a Trump presidency would cause the Fed to raise rates at a slightly quicker pace, the U.S. central bank would likely only raise rates twice next year.

Fitzpatrick said Fed Chair Janet Yellen, whose term ends in 2018, probably would not be reappointed under a Trump administration. She said she hoped Trump would not “politicize” the Fed.

“I really hope Trump doesn’t politicize the Federal Reserve. I think Yellen is doing actually a very good job,” she said.

Steven Tananbaum, chief investment officer and founding partner of asset manager GoldenTree Asset Management

Tananbaum said he was finding little reason to invest in European corporate bonds given valuations and uncertainty surrounding upcoming Italian, French and German elections.

“You could definitely get some surprises,” he said in reference to the potential election outcomes.

Tananbaum said he was bullish on metallurgical coal company Natural Resource Partners NRP.N and that metallurgical coal prices would still have "a lot of value" at $130-140 per tonne.

Larry Hatheway, group head of GAM Investment Solutions

Hatheway told Reuters in London that the market needed to price in another two rate hikes from the Fed over the next 12-18 months, making four in total.

He argued that the tax cuts and infrastructure spending mooted by Trump combined with deregulation of sectors such as finance and healthcare could unleash “animal spirits.”

This mix, coupled with resilient growth in advanced economies and the big credit expansion still playing out in China, meant the things that have restrained the Fed this year were unlikely to restrain it going forward, he said.

Didier Saint-Georges, managing director at Carmignac Gestion

“What we need to focus on is corporation tax. Here, I think it really gets interesting,” Saint-Georges told Reuters in London. “It’s not going to be very difficult to get an agreement through ... a Republican Congress (and) it has got a mechanical effect on net earnings of corporate America.”

But he added that the potential of corporate tax cuts to suck in foreign money to the United States could be a key driver of a higher dollar over the coming year as that helps cut the U.S. balance of payments deficit.

John Doyle, chief investment officer for multi-asset and equity strategies, UOB Asset Management

UOB has sold off longer-duration bonds and increased holdings of shorter-term ones in anticipation of faster U.S. growth, John Doyle, chief investment officer for multi-asset and equity strategies, told Reuters in Singapore.

“The shift in inflation expectations...has big implications for investments,” Doyle said. “The early part of the year could be trickier (for bonds globally).”

The dollar could also continue to strengthen, particularly as a potential tax amnesty to urge U.S. corporations to repatriate earnings could lead to further inflows, Doyle said.

K.C. Nelson, director of long/short credit and event driven strategies at Driehaus Capital Management

Nelson said that since June, there has been a near perfect correlation between U.S. Treasuries and the benchmark Bloomberg Barclays U.S. Aggregate Bond Index.

Nelson said that in part reflects the broad-based, years-long slide in rates that some investors believe may mark a culmination for a three-decade bond bull market.

“As rates have all compressed lower and lower and lower, coupons ... have gone closer and closer to zero,” he said. “They’ve all started to look increasingly like a zero-coupon bond ... which is the most interest rate-sensitive bond you can have.”

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(For more summit stories, see here)

Reporting by Claire Milhench and Karin Strohecker in London, Nichola Saminather and Marius Zaharia in Singapore, and Svea Herbst-Bayliss, Jennifer Ablan, Jonathan Stempel, Lawrence Delevigne, and Trevor Hunnicutt in New York