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Investors’ expectations for ECB rate cuts have not changed much over recent months and today’s meeting did little to change that. Instead, euro-zone assets have been influenced more by French politics of late; and while contagion concerns have eased, we …
18th July 2024
A recent surge in the Russell 2000 after the US CPI report for June was published last week has prompted claims that we are entering the initial stage of a secular rotation into US small-cap stocks. We are not convinced, for four reasons. First, what has …
17th July 2024
We expect short-term US Treasury yields to keep falling more rapidly than long-term ones, eventually putting an end to more than two years of an inverted yield curve. Despite a small rebound today after strong retail sales data were published, short-term …
16th July 2024
Recent events have increased the perceived likelihood of another Trump presidency and, in the process, provided a clearer steer on how market participants expect such an outcome to affect key financial markets. Four key points stand out. First, between …
15th July 2024
We think the rally in Treasuries and pullback in the dollar since US CPI data was released yesterday have further to run. But we doubt the big rotation within equities yesterday is a sign of things to come. The reaction to US CPI data , released …
12th July 2024
The valuations of “risky” assets have continued to rise, both in absolute terms and relative to “safe” asset yields. We think that reflects the inflation of a bubble in stock markets, itself a consequence of growing enthusiasm about AI technology. But our …
Another fairly encouraging US CPI report seems unlikely to blow the buoyant S&P 500 far off course given the implications for Fed policy. Indeed, it strengthens the case for a rate cut in September. Our base case is that the economic backdrop will remain …
11th July 2024
We anticipate the spread between 10-year Swiss and German government bond yields, which has widened significantly since 2022, will narrow only slightly over the next couple of years. The spread between 10-year Swiss and German government bond yields has …
We think that corporate bonds will continue to underperform equities, as credit spreads are already low, economic growth moderates, and equities benefit more from enthusiasm about AI. After spiking in the first two weeks of June, credit spreads have …
10th July 2024
In the wake of the political tumult in France contrasting with newfound stability in the UK, the outlook for the exchange rate between the euro and sterling has come into spotlight. We think that yield differentials will play a much more important role …
9th July 2024
The results of France’s parliamentary elections mean it should avoid the large, unfunded fiscal expansion that two of the three major political groups were advocating. But it also means France is very unlikely to be able to reduce the deficit as required …
8th July 2024
The surprising results of the French legislative elections have not triggered much of a market reaction. While investors appear to have been relieved by the far-right National Rally (RN)’s failure to be in a position to govern, the strong showing of the …
We expect Treasury yields to fall a bit further, but we doubt that will lead to a weaker dollar. At first glance, the US Employment Report for June , released today, seemed to bring good news on the economic front, with a stronger-than-expected gain in …
5th July 2024
The US ISM services data published yesterday suggested that US economic growth slowed in June. Even so, the S&P 500 index surged on the news. And we think it will rise much further, as stock market performance increasingly decouples from the real economy, …
4th July 2024
Recent developments have brought the global spotlight onto sovereign bonds in India and China. We expect the former to fare the best of the two. We’ve written lately about the relative prospects for equities in India and China, arguing in favour of the …
3rd July 2024
Despite the continued depreciation of the yen so far this year, we still expect it to rebound against the greenback supported by its relatively low valuation and the start of the easing cycle in the US. Although the yen has remained stable today against …
2nd July 2024
We continue to expect equities to outperform most other assets through the end of next year, as the hype around AI builds and lower inflation facilitates more monetary easing in some places than investors are discounting. The tech-heavy US stock market …
1st July 2024
Investors have welcomed the broadly unsurprising results of the first round of the French legislative elections, but the discount on French financial assets is still there and, in our view, likely to stay. The final results of the election’s first round …
With unhedged yield gaps still very much in favour of overseas bonds and hedged returns set to improve as overseas central banks slash borrowing costs, Japanese investors won’t respond to higher JGB yields by repatriating capital. And while we expect …
Incumbent President Biden’s uneven performance during the debate yesterday with his predecessor and challenger, Donald Trump, has reduced Biden’s perceived chance of winning re-election significantly. Financial markets have not reacted much to this …
28th June 2024
The last US tech bubble inflated in a different way to this one. A comparison of the two leads us to conclude that this bubble will continue to inflate , despite the recent wobble in Nvidia’s share price . To re-cap, forward twelve month (FTM) earnings …
27th June 2024
Although it’s showed little signs of it lately, we still expect the yen to rebound against the dollar. The yen’s recent struggles have left it its weakest level against the US dollar since the 1980s. Given that the USD/JPY rate has breached 160, where the …
26th June 2024
Nvidia has entered correction territory, but we doubt this will mark the beginning of the end of enthusiasm about artificial intelligence (AI). Instead, this might usher in a new phase of a bubble we expect will keep inflating in the next year or so. …
25th June 2024
Nearly all major emerging market (EM) currencies have fallen against the US dollar so far this year, but we think the downside for most of these currencies is limited from here. While most EM currencies are starting the week on a strong note, they have a …
24th June 2024
This Update summarises the answers to some of the questions which clients raised in our recent online briefing about the forthcoming French legislative elections. The questions are divided into three sections: politics, economics, and markets. (The online …
Weaker-than-expected euro-zone PMIs in June leave us confident in our view that bund yields will edge down over the coming months, while we doubt spreads will fall back much in France or Italy. This also supports our view that the euro will remain on the …
21st June 2024
We think the S&P 500 will make further gains over the coming months, even though it’s already fared well this year and is approaching our existing end-year forecast. As such, we’ve revised that forecast up. Meanwhile, we think equities elsewhere will …
Latin American assets have generally underperformed those elsewhere of late, in part driven by rising risk premia on the region’s assets. We think these risk premia may rise further over the coming year or so, given our downbeat view on economic growth in …
Despite the many twists and turns in bond markets this month amid mixed signals from central banks, most sovereign bonds in developed markets (DM) have rallied on net. We expect this to continue, with yields falling further in the coming months. The three …
20th June 2024
The US stock market has hit another fresh all-time high, with its ascent is an increasingly lonely one driven by a handful of its constituents. That pattern may be difficult to sustain indefinitely, but we remain optimistic about the outlook for US …
19th June 2024
We expect political uncertainty in France to maintain a floor under government bond spreads in the near term, not only in France but also in other vulnerable euro-zone countries. Further ahead, we see scope for spreads to fall back in Greece, Portugal, …
Although the Reserve Bank of Australia (RBA) – which left policy on hold today – looks set to be the last developed market central bank to join the easing cycle now underway among developed economies, we think more important for long-term bond markets …
18th June 2024
We expect the renewed underperformance of small-cap equities vis-à-vis larger ones, which is now near its most extreme in two decades in the US, to continue there over the next year or so. (See Chart 1.) That’s because we suspect that the stock market …
17th June 2024
French government bonds and equities have sold off this week, and the euro has weakened. A lot of bad news now seems priced in, but we suspect the discount on French assets is here to stay. Investors have now had some time to digest French President …
14th June 2024
The 10-year yield spread between government bonds in France and Germany has risen above 80bp, its highest since the euro-zone debt crisis. Should the far-right National Rally be in a position to form a government after the upcoming elections, we suspect a …
Although falling Treasury yields may continue to exert some downward pressure on Japanese Government Bond (JGB) yields, we don’t think that will drive them much lower by the end of the year. The rollercoaster ride that Treasury yields have been on since …
13th June 2024
We are retaining our forecast that the 10-year Treasury yield will fall to 4.0% by the end of this year. That reflects our expectation that the Fed will pursue a slightly looser conventional monetary policy than the one discounted in the financial markets …
Today’s release of the US CPI data for May offered some respite in markets after last Friday’s stronger-than-expected May payrolls data. On balance, we continue to anticipate that the Fed will eventually cut by a bit more than what is currently priced …
12th June 2024
We think that China’s “tech” equities could resume their rally, but that they’re unlikely to see anything like the gains their developed market peers have. China’s tech sectors fared better than most of its equities today, falling only a little amid a …
11th June 2024
French President Emmanuel Macron’s decision to call for snap elections has triggered a negative reaction in markets, not only in France but also in the rest of the EU. Even though the far-right National Rally has abandoned its most extreme economic …
10th June 2024
Another strong reading on the US labour market has reversed much of the recent drop in US interest rate expectations but we continue to think Treasury yield are headed lower later this year. Today’s US non-farm payrolls report for May came in at a …
7th June 2024
Elections in South Africa, India, and Mexico have generated sizeable reactions in their financial markets over the past week or so, highlighting the potential for electoral surprises to generate short-term volatility. This Update takes stock of the …
While euro-zone inflation data has recently surprised to the upside, which was reflected in the hawkish tone of today’s ECB meeting , we still think the 10-year Bund yield will fall faster than the 10-year Treasury yield by end-2024. Although today’s 25bp …
6th June 2024
India’s election result isn’t, in our view, reason to turn downbeat on the country’s equity market, its wobbles earlier this week notwithstanding. But with a very positive story seemingly still priced in to India’s equities, both on the political and …
Although the gap between 10-year Treasur y and Canadian Government Bond (CGBs) yields has reached the highest level in at least three decades today, we think it will widen even further in the next couple of years . The 10-year CGB yield has fallen ~15bp …
5th June 2024
The US stock market has been pulled in different directions by economic data since last week. But we suspect that the general trend in the next year or so will be up, as equities benefit from at least moderate economic growth, looser monetary policy, and, …
4th June 2024
Elections in South Africa, India, and Mexico have generated sizeable reactions in financial markets. Those moves may not last – often the immediate reaction to political events proves overdone – but they highlight the potential for electoral surprises to …
3rd June 2024
The fall in Treasury yields over the past two days has failed to lift equities, partly because of waning AI hype weighing on the market. That’s a contrast to much of the past year or so, when the opposite has been true. If both of these forces combine in …
31st May 2024
The early results from South Africa’s general election suggest that the African National Congress (ANC) will fall short of securing a majority, and may be forced into forming a coalition with the centre-right Democratic Alliance (DA), or either (or both) …
30th May 2024
We expect the 10-year Bund yield to fall by the end of the year as the ECB loosens policy more than investors are currently discounting. Judging by the initial fall in 10-year Bund yield this morning, German state-level inflation data released earlier in …
29th May 2024
