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We expect total returns from both US dollar-denominated, and especially local-currency (LC), emerging market (EM) sovereign bonds to trump, in general, those from US Treasuries in the next couple of years. Dollar-denominated and LC EM sovereign bond …
15th May 2024
Even if interest in ‘meme’ stocks rebounds following a renewed surge in GameStop’s share price, some of the telltale signs that a bubble in the broader stock market may be entering its final stages – such as excessive leverage – are absent. This suggests …
14th May 2024
While we expect government bond yields in most developed markets to fall back, we think that those in Japan will stabilise around their current levels. In turn, we anticipate that interest rate differentials will provide support to the yen. The yield of …
13th May 2024
The hawkish tone of Latin American central banks this week supports our view that loosening cycles in the region will proceed more gradually than many anticipate. But even so, we think most Latin American currencies will weaken by end-2024. This week’s …
10th May 2024
The shares of the very biggest, ‘mega-cap’, firms have generally outperformed those of smaller ones by less in Europe than they have in the US on net so far this decade. We expect that to remain the case through the end of 2025, as bond yields drop back …
Policymakers at the Bank of England (BoE) are edging closer to easing policy, and we still think they will cut Bank Rate by more than widely anticipated. In turn, we expect this will weigh on Gilt yields and sterling. The muted market reaction to the Bank …
9th May 2024
We expect Japanese government bond (JGB) yields to rise a bit and the yen to come off the boil later this year, creating a headwind for equities there. The 10-year JGB yield has jumped 4bp and the TOPIX has dipped over 1% today following comments by Bank …
8th May 2024
The near-relentless narrowing in US credit spreads over the past year or so has left them at their lowest levels since late 2021. This echoes similarly upbeat pricing in the stock market. But, while we think that equities still have plenty of room to …
7th May 2024
Today’s favourable reaction in the US stock market to April's softer-than-expected Employment Report has coincided with renewed hopes of interest rate cuts, judging by the initial plunge in the 2-year Treasury yield towards 4.7%. (See Chart 1.) …
3rd May 2024
Despite the correction in equity markets over the past month, risk premia generally remain low across financial markets. While we expect this to continue as an AI-driven bubble inflates in equity markets, this Update explores four areas that could …
This week’s FOMC meeting supports our view that bond yields will fall back a bit further this year. Overall, financial markets took yesterday’s FOMC meeting and the following press conference as fairly dovish . Arguably, the key point in Chair Powell’s …
2nd May 2024
We envisage cyclical sectors generally continuing to outperform defensive ones in the S&P 500 through the end of 2025. That reflects our view about the economic outlook; our expectation that hype around artificial intelligence (AI) will grow; our forecast …
We doubt the recent rise in US bond yields will continue much further, or significantly undermine the prospects of US equities. The 10-year Treasury yield has fallen back a bit today ahead of the FOMC’s policy announcement, as the US Treasury’s Quarterly …
1st May 2024
We expect equities to outperform most other assets as a bubble fuelled by AI-enthusiasm continues to inflate, supported by a backdrop of resilient economic growth and monetary easing cycles. In particular, we expect US equities to continue to lead the …
30th April 2024
While we expect Chinese bonds and equities to make more gains in the near term, w e think the outlook further ahead is not as bright for the latter. Chinese government bonds have been quite volatile in recent days. The 10-year yield recorded on Friday one …
Japan’s apparent intervention in support of the beleaguered yen may buy some time for the currency to stabilise, but is unlikely to lead to sustained turnaround until US interest rate expectations start to fall back. While Ministry of Finance (MoF) …
29th April 2024
The NASDAQ 100 has shrugged off this week’s surge in real US Treasury yields amid a mixed bag of earnings reports from some of the ‘Magnificent 7’. (See Chart 1.) This suggests to us that the earlier pull-back in the index wasn’t a harbinger of a far …
26th April 2024
We think the recent recovery in the share prices of some of the ‘Magnificent 7’ is a sign that the earlier pull-back in their collective performance wasn’t a harbinger of a far bigger correction in the NASDAQ 100. On the contrary, we suspect that index …
Hikes are back on the agenda at some central banks and core PCE data for Q1 added to the hawkish mood in US markets. But we don’t think the Fed will feel the need to start hiking again. Indeed, given the path of underlying inflation, we continue to think …
25th April 2024
Even if the US dollar stays strong against most currencies this year, we think that much of the broad-based weakness in EM (emerging market) FX has run its course. While some EM central banks may now slow their easing cycles, major shifts in policy are …
24th April 2024
You can use the "Table of Contents" feature, found on the top right of the webpage, to navigate this publication quickly. Summary: The rally in equities over the past year or so, driven in no small part by hype around AI, has left stock markets looking …
We expect corporate bond yields in the UK and euro-zone to fall as rate cuts in those economies push down risk-free rates and strong risk sentiment narrows spreads further. In contrast to the weaker-than-expected PMI data out of the US today, PMIs for …
23rd April 2024
Stock markets are having a tough start to the quarter, but we think that they will rebound, notably in the US, thanks to renewed enthusiasm about artificial intelligence (AI). While they have bounced back a bit today, equities in the US and elsewhere have …
22nd April 2024
All nine constituents of the S&P 500 diversified banks index have now released their earnings reports for Q1. While the performance of their shares has typically been underwhelming of late, in some cases that can be only partly attributed to the lukewarm …
19th April 2024
Higher Treasury yields, a resilient US economy, and relatively low valuations are three reasons why we now think that the future for US banks in general is a bit brighter. The share prices of banks in the S&P 500 have underperformed the overall index …
Despite the ongoing surge in long-term government bond yields, the US yield curve remains inverted. As such, it is worth revisiting what the implications are for financial markets, and how this episode differs (or not) from previous curve inversions. As …
18th April 2024
Today’s UK CPI release has not made a sustained impact on investors’ expectations over the path of Bank Rate, and the market pricing implies that investors are still discounting fewer cuts from the Bank of England (BoE) than we are. This is why we expect …
17th April 2024
The correlation between changes in bond yields and in equities has rarely been so negative, and we suspect this will continue as yields fall back and equities rebound. When the Federal Reserve turned to monetary policy tightening in 2022, Treasury yields …
16th April 2024
Many of the usual relationships between oil prices and equities haven’t held over recent months. This Update explores the reason for that, and what may lie in store for energy equities and the broader market. Since troughing on 12 th December 2023, the …
Financial markets have, so far, taken the latest escalation in the Middle East over the weekend largely in stride. Our sense remains that, absent an even larger conflagration that disrupts energy supply chains, market participants will continue to focus …
15th April 2024
Inflationary pressures both domestically and in the US may keep government bond yields in emerging markets (EM) high for a while yet. But we think they will eventually fall later in the year. 10-year EM government bond yields have followed US Treasury …
12th April 2024
We think ‘value’ stocks will generally underperform their ‘growth’ counterparts while a bubble in the US stock market continues to inflate, even if Treasury yields don’t drop back in the way that we expect. Depending on your perspective, value stocks – …
We don’t expect the tough times to last for Treasuries. But although their woes so far have coincided with big gains in the stock market (at least until very recently) we don’t think a recovery in Treasuries would necessarily coincide with an end to …
Today’s ECB policy announcement and press conference support our forecast for a June rate cut. Given that we expect more rate cuts than the money market discounts, we think that Bund yields will fall back towards 2.25% by the end of the year. Today’s …
11th April 2024
Today’s slump in S&P 500, following the release of a hotter-than-expected US CPI report for March, underscores the US stock market’s vulnerability to disappointing news on inflation. (See Chart 1.) Nonetheless, even though the pull-back was accompanied by …
10th April 2024
We think the price of gold will have eased back from current record highs by end-2024, but falling US Treasury yields and some softness in the US dollar will keep the price elevated. We had always expected the price of gold to fare well this year given …
9th April 2024
We expect Japanese equities to do quite well this year, as hype around artificial intelligence proves a more powerful catalyst than the headwind we anticipate from a stronger yen. Despite bouncing back a bit today, Japanese equities have fared poorly …
8th April 2024
Continued strength in the US labour market may keep US Treasury yields elevated and the greenback strong in the short term, but we think the upside for both is limited from here. And the backdrop for US equities looks favourable to us, even if the Fed …
5th April 2024
4th April 2024
While a rising tide of optimism has lifted most boats in the US stock market so far this year , real estate is the notable exception . (See Chart 1.) That may change if, as we anticipate, the 10-year Treasury yield drops back a bit further from a roughly …
We think China’s equities could fare better than those in India in the near term. For a while now India’s equity market has reportedly been a popular target for investors seeking emerging market exposure with less of the risks that come with investing in …
3rd April 2024
The sharp rise in Treasury yields this week has probably contributed to the sell-off in US equities, but it isn’t the only factor. And even if Treasury yields remain high, we doubt that would prevent the US stock market from rising further this year. The …
2nd April 2024
Equities have enjoyed another strong quarter and, while a lot of good news is priced in, we think they can extend their winning streak. Sovereign bonds have, by contrast, struggled over Q1; but we think they have scope to rally, and rate cuts by major …
28th March 2024
We think the bulk of the fall in corporate credit spreads is now in the rearview mirror, especially in the US. After falling markedly since November last year , the option-adjusted spreads (OAS) of the US ICE BofA Corporate Bond Indices have stabilised …
27th March 2024
We wouldn’t be surprised if the “non-tech” sectors of the S&P 500 continued to make gains over the rest of 2024, but we don’t expect them to keep pace with the tech giants as well as they have lately. It’s been a second consecutive great quarter for the …
While w e think that equities in the UK will continue to rise over the next couple of years, we suspect they will keep underperforming those in the US, and we see little scope for valuations to help them relative to other developed market equities. UK …
26th March 2024
Push-back from the authorities in China and Japan has stabilised their currencies against the US dollar today, and our base case remains that policymakers will prevent destabilising depreciations in the renminbi and yen. Nonetheless, it is worth thinking …
25th March 2024
While the current backdrop may keep the renminbi on the back foot against the dollar in the short term, we doubt that these headwinds will push the currency meaningfully lower this year. The renminbi has finally weakened against the dollar after more than …
22nd March 2024
Japan’s exit from negative interest rates could place some upward pressure on bond term premia elsewhere, but we don’t think it will prove too disruptive to markets even if the BoJ ultimately hikes a lot more than we expect. Investors largely took the …
This week’s flurry of central bank meeting points to growing confidence among policymakers in most major economies that inflation is on track back to target. That supports our view that long-term government bond yields will fall back a bit further this …
21st March 2024
