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Our view on UK inflation vis-à-vis the US suggest s that bond yields are set to fall back by more in the former , adding downward pressure on sterling. Today’s mixed UK Labour market data prompted only modest falls in Gilt yields and sterling, as it …
12th September 2023
Another step up in the Chinese and Japanese authorities’ efforts to prop up their faltering currencies has given the renminbi and the yen a bit of a boost today. Alone, these measures are unlikely to prove the start of a lasting turnaround: we continue to …
11th September 2023
Although upward pressure on the 10-year Treasury yield has abated a bit, the big picture is that it has risen by ~80bp on net in the past four months. While some of this rise has reflected a reassessment in the market of how quickly the Fed will cut rates …
8th September 2023
Market implied rates suggest that investors expect inflation to normalise in the US and Europe in the next couple of years. While we share that view, we think they are overestimating the level of policy rates required to achieve inflation targets. As a …
Emerging market (EM) easing cycles are underway in earnest even as the first Fed cut remains a while away. We think this easing will help to drive EM local-currency (LC) government bond yields lower, in general, over the rest of 2023. But we still expect …
7th September 2023
Recent patterns in the US stock market are sending mixed signals about the extent to which investors are braced for an economic downturn. Our own view is that equities will struggle to make more headway this year – even if the economy avoids an outright …
The worsening economic growth backdrop suggests to us that interest rate expectations for cyclically sensitive developed market (DM) economies are too high. We expect them to fall and drag bond yields sharply lower over the next couple of years. Earlier …
6th September 2023
We doubt the strong gains in Japan’s equity market this year mark the start of a significant reversal of its decades-long underperformance; we expect it to lag the US market over the next couple of years, both in local-currency (LC) and US$ terms. Today’s …
5th September 2023
New measures to support China’s struggling property sector seem to have sparked some renewed optimism in the country’s financial markets. We think there are three points to note. First, despite the rally, investors still seem quite downbeat on China. The …
4th September 2023
Despite today’s rebound, the general fall in Treasury yields over the past week against a backdrop of mixed economic data suggests investors could be starting to come round to our view that price pressures will continue to ease almost irrespective of how …
1st September 2023
We think China’s AI-related stocks may outperform their US counterparts over the rest of this year. But their longer-term prospects look less upbeat, to us. AI-related stocks in China were boosted overnight after a number of China-based firms launched …
31st August 2023
Although we’re growing less convinced by the idea that the US economy will tip into recession over the coming quarters, we still expect disappointing growth across advanced economies to weigh on risk appetite over the rest of this year. We think that may …
Stronger-than-expected inflation data from Germany and Spain today add to the uncertainty surrounding the near-term path of ECB policy. On balance, we think that the ECB will raise rates once more in this cycle and that government bond yields will fall by …
30th August 2023
We expect the gap between high yield (HY) credit spreads in the euro-zone and the US to narrow over the rest of this year as spreads in both economies climb. The option-adjusted spreads (OAS) of HY corporate bonds in the euro-zone have climbed to their …
29th August 2023
Equities in Europe, the Middle East and Africa (EMEA) have returned little in US$ terms so far this year. While they may fare better next year, we doubt they’ll outperform the wider emerging equity market. Equities in EMEA, although marginally ahead of …
Market participants have taken Fed Chair Powell’s much-anticipated keynote speech at the Jackson Hole conference today as somewhat hawkish, even if the fallout, so far, is some way from the violent market moves which followed his remarks at last year’s …
25th August 2023
Equities in Emerging Asia outside China have largely outperformed their peers in other Emerging Markets (EMs) since the pandemic started. We think that they will hold up better during the global stock market decline that we expect, and that they will also …
24th August 2023
Stronger-than-expected Q2 earnings from Nvidia have extended this week’s relief rally in stock markets. While we think that US equities could falter over the rest of the year as growth disappoints, we suspect that AI enthusiasm will trigger an even …
The weaker-than-expected PMI data from European economies is consistent with our view that the euro and sterling will fall further against the dollar over the next couple of months. Earlier today, PMI data for August out of the euro-zone and UK came in …
23rd August 2023
Although the 10-year JGB yield has gradually been creeping up towards the new 1% ceiling tolerated by the BoJ, this is no surprise given a broad-based rise in 10-year sovereign yields elsewhere. Indeed, if it weren’t for the BoJ’s ongoing Yield Curve …
22nd August 2023
Equities in Latin America have generally returned more than those in the rest of the world so far this year for US dollar-based investors willing to shoulder the currency risk. We think that is set to change. The total return in US dollars from the MSCI …
We think global credit spreads will rise further by end-2023 in the face of disappointing growth. Having generally fallen since mid-March, credit spreads have been on the rise recently. Over the past week, for example, both the option-adjusted spread …
21st August 2023
Although the US stock market has started to come under pressure from rising Treasury yields, the valuation of equities relative to government bonds is still a long way from being as stretched as it was before the dot com bubble burst and on the eve of the …
18th August 2023
The continued rise in Treasury yields, following what may well have been the Fed’s final interest rate hike last month, contrasts with the experience of recent tightening cycles. But we still expect falling inflation between now and the end of the year to …
17th August 2023
The S&P 500 IT sector has struggled this month amid rising bond yields and waning enthusiasm for AI. While we think the sector may fall further this year in absolute terms, we still project it to outperform in this period. What’s more, we expect the …
Although disinflation in the UK is lagging that in the US, we expect yields in both places to fall this year. And we think that Gilt yields are set to fall by a bit more than Treasury yields through 2024 and 2025. UK CPI data for July, released this …
16th August 2023
The difficulties facing China’s economy and financial system continue to dominate much of the headlines. So far, the gloom has not made a major dent in the optimism reflected in global markets, although that could yet change. Another round of …
15th August 2023
We don’t think the ongoing troubles in China’s property sector mark the beginnings of a financial crisis, but do expect them to be a drag on returns from the country’s stock market over time. News that Country Garden – a large Chinese property developer – …
14th August 2023
With more poor economic data out of China and US yields again threatening to push towards new highs, it is little wonder that the yen and the renminbi have come under renewed pressure. While we still think both currencies will rebound later this year, our …
11th August 2023
The big swings in Treasury yields recently have sent some ripples through the US stock market. This Update sets out how we think this will continue to play out, for the equity market as a whole and across some particularly interest-rate sensitive sectors, …
Since our last Financial Market Stress Monitor on 13 th May, strains have continued to ease. This abbreviated Stress Monitor takes stock of developments since then. Overall, stress across core financial markets appears about as low as at any point …
10th August 2023
We think disinflationary pressures will help the Fed pivot to rate cuts sooner than investors expect, giving a boost to “safe” assets this year and next. US CPI data for July, published today, was largely in line with consensus expectations. (See here .) …
The stark and unusual contrast between falling credit spreads of high-yield (HY) corporate bonds and rising ones of private-label commercial mortgage-backed securities (CMBS) in the US suggests investors expect the economy there to shrug off lingering …
Despite oil prices hitting new year-to-date highs, other factors seem to be dominating the effect of rising oil prices on equity, bond, and FX markets. Even if, as we expect, oil prices edge lower over the next couple of years, we think the link between …
9th August 2023
The share prices of US banks have recovered some ground since a low point in May, as concerns about further failures in the industry have abated; Treasury yields have rebounded; and the economy has remained resilient. Even so, we’re sceptical banks will …
8th August 2023
We think the 10-year/2-year Treasury yield spread will become less inverted over the next year or so, but doubt this will come primarily via a continued rise in the 10-year yield like we saw last week. A striking part of last week’s Treasury sell-off was …
7th August 2023
The US Employment Report for July adds support to our view that long-dated Treasury yields will fall over the rest of this year . The weaker-than-expected July US Employment Report seems to have stemmed the bleeding in the bond market so far today, with …
4th August 2023
The US government losing another one of its “AAA” ratings after Fitch Ratings’ downgrade decision Wednesday is more symbol than substance. But three key related points are worth highlighting. First, the market reaction differs significantly from that of …
The French stock market’s strong showing since 2018 appears to have been built on solid ground. But French equities have stopped outperforming their German peers this year, and the bar is quite high for them to start doing so again. French and German …
3rd August 2023
Though investors appear to be increasingly moving towards our view of Bank Rate peaking at 5.50%, we think the levels priced into the market beyond this year – and, accordingly, expectations for gilt yields and sterling – are still too high. Today’s …
We think El Ni ño poses downside risks to the prices of emerging market assets, in general. But even if the effect in aggregate wasn’t all that large, there are several vulnerable sectors where such an event could create some relative winners and …
The US government losing another one of its “AAA” ratings after Fitch Ratings’ downgrade decision last night is unlikely to matter much in the near term, but three points are worth highlighting. First, the market reaction so far is a far cry from that in …
2nd August 2023
Some measures of market risk premia have become quite low, suggesting to us that the bar for further big gains in risky assets has risen. If last week’s strong Q2 GDP print emphasised the surprising resilience of the US economy, the past couple of days …
1st August 2023
While we suspect that sticky core inflation in the euro-zone will mean “higher for longer” interest rates there, we think that the ECB will eventually deliver more rate cuts than currently priced into the markets. Along with our dovish view of Fed policy, …
31st July 2023
The Bank of Japan (BoJ) seems to have effectively ended yield curve control (YCC) without making a big splash in financial markets, but we wouldn’t rule out further effects – on Japan’s markets and those around the world – just yet. For a start, we …
28th July 2023
Our View : We still expect the US and other advanced economies to tip into recession later this year. We think that will cause risk appetite to sour, putting pressure on ‘risky’ assets and favouring ‘safe’ ones. We expect central banks, in general, to cut …
While both the Fed and ECB appear to be nearing the end of their tightening cycles, the strength of the US economy relative to the euro-zone suggests to us the euro is likely to fall further against the greenback over the coming months . Today’s …
27th July 2023
The sky-high valuations of some touted winners from AI have given rise to claims that their share prices have risen to unsustainably high levels. Is there anything we can learn from the dot com era? The best-performing stock in the S&P 500 in the …
26th July 2023
If the Fed’s tightening cycle ends today, as we expect, then the yield curve will be unusually inverted for this point in the monetary policy cycle. We think it will remain so until next year. Although money markets discount some chance of further …
Chinese equities enjoyed one of their best days in years today, and we think they may continue to outperform equities elsewhere over the rest of this year. But the longer-term prospects for China’s stock market still look relatively unappealing to us. …
25th July 2023
