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President-elect Trump’s latest tariff threat, this time against the “BRICS” economies, is another early taste of his combative approach to trade policy and its potential impact on financial markets. The chance of a BRICS currency (or another alternative) …
2nd December 2024
Despite the recent upward revisions to our forecasts for the US dollar and Treasury yields, we think the gold price will rise to $2,750 by end-2025. This reflects our view that stronger gold demand from China and broader concerns about fiscal …
We now think the 10-year JGB yield will rise further, the yen will make more ground against the US dollar, and Japan’s equities will struggle to make much headway (in yen terms). Inflation in Japan looked, only a couple of months ago, to be firmly on the …
The spread between 10-year French and German government bond yields has risen again, and we forecast that it will continue to trend up next year. The spread between the yields of 10-year French OATs and German Bunds has surged in recent days, reaching a …
29th November 2024
We held an online session on US import tariffs on 26th November. (See a recording here ). In this Update we answer the questions we were most asked. What are Trump’s motives for threatening tariffs and will he follow through? Trump has spoken about using …
National inflation data for November released today suggest that euro-zone inflation has edged up this month, but we think this is just a blip. We still expect inflation to drop below target next year and the ECB to cut interest rates by more than …
28th November 2024
We expect the New Zealand dollar to fall against the US and Australian dollars over the next year or so, and fare worse than most – if not all – other G10 currencies. Today’s as-expected 50bp rate cut by the Reserve Bank of New Zealand (RBNZ) didn’t move …
27th November 2024
We aren’t convinced the outperformance of US small-cap (SC) equities since Donald Trump’s victory on 5 th November sets the tone for the first half of 2025. We doubt they will start to fare better than large-cap (LC) equities over a sustained period until …
26th November 2024
Latin American (LatAm) markets have been generally resilient in the aftermath of the US election, possibly because investors were already pessimistic about the region’s prospects. But we think domestic and global headwinds will translate into LatAm assets …
President-elect Donald Trump’s first threatened tariffs since the election are designed to extract concessions on drug trafficking and illegal border crossings, which means it may be possible for the countries targeted – Canada, Mexico and China – to head …
India’s stock market has had such a good few years that it started to raise concerns about whether it was in a “bubble”. And as it’s come under pressure recently, some have speculated that the bubble is bursting. For our part, we think that there are …
The spread between 10- and 2-year Treasury yields has ‘inverted’ again, partly because the nomination of Bessent as US Treasury secretary has eased fiscal concerns. But we forecast the curve to steepen by more than most expect over 2025 as the Fed …
25th November 2024
We discussed the global impact of higher tariffs in a Drop-In on Tuesday, 26th November. Click here to watch the 20-minute online briefing. In this Focus, we construct a framework to explore the channels through which an import tariff works, which we use …
November’s weaker-than-expected Flash PMIs for the euro-zone prompted investors to lower their policy rate expectations. Even so, we still expect more easing than implied in money markets, so we think Bund yields will fall a bit further. The euro-zone …
22nd November 2024
With the dust settling on Trump’s victory earlier this month, this Update takes stock of what has happened across currencies, bonds, and equities; the reasons for these moves; and what we think will happen next. As was the case after Trump’s win in 2016, …
Given our expectation that the Trump administration will push forward with plans to raise tariffs across the board, we have generally revised down our forecasts for stock markets outside the US. And with China being the main target of the trade war, we …
21st November 2024
We don’t think the S&P 500’s AI tailwind has run out of puff yet, despite the seemingly lukewarm market reaction to Nvidia’s latest profit result. It’s tempting to see a warning sign for the broader market in the reaction to Nvidia’s latest profit …
Inflation has picked up in the UK but, unlike in the US, we doubt that any worries about stronger price pressures will be sustained. That’s why we still expect Gilt yields to fall. UK CPI inflation , released earlier today, went back above the Bank of …
20th November 2024
We doubt upward pressure on Japan’s long-term bond yields will persist for long, as the Bank of Japan tightens policy by less than investors anticipate and yields in the US remain quite stable. The 10-year JGB yield has risen a lot since October. Despite …
19th November 2024
Higher US interest rates will probably continue to weigh on government bonds globally. But we still expect bond yields in most developed market (DM) economies to fall back by the end of 2025, as domestic monetary policy eases further. Sovereign yields …
Although last week’s pull-back in the S&P 500 coincided with a big increase in the 10-year TIPS yield, we don’t think this marks the start of prolonged period of weakness in US equities driven by government bonds. Our view is that the S&P 500 will resume …
18th November 2024
We think that downward pressure on Chinese equities will intensify over the coming year or so, as the boost from largely insufficient fiscal support fades and Trump’s incoming administration proceeds with plans to impose additional tariffs. China’s …
15th November 2024
We expect the Treasury yield curve to steepen further over the coming year, but driven by falling short-dated yields rather than – as has been the case in the wake of Trump’s win – rising long-dated ones. As had been widely expected prior to the election, …
14th November 2024
We wouldn’t read much into the recent contraction in swap spreads in Germany. Despite turning negative, the 10-year euro-zone OIS/Bund spread is not far below its level before the pandemic. And it remains well above 10-year US OIS/Treasury and 10-year …
We think investors are now overestimating how tight Brazil’s central bank will keep policy over the coming years, so we expect local-currency bond yields there to fall by end-2025. Still, fiscal concerns may keep yields high by past standards and we …
While investors shrugged off today’s news on US inflation, they seem increasingly concerned about its longer-term outlook. We share their view and expect Treasury yields to rise a bit further still. Today’s inflation release showed that US CPI for October …
13th November 2024
We doubt the S&P 500 will come a cropper in 2025 even though the index fell in 2018 when Donald Trump began to wage a less ambitious trade war than the one he is planning now. Although the S&P 500 was struggling today at the time of writing, it had been …
12th November 2024
The euro has suffered more than most in the wake of Trump’s victory and we doubt that will let up anytime soon. Given our view that tariffs will be imposed next year and the ECB will ease by more than investors expect, we forecast the euro to slide to …
11th November 2024
Could the collapse of Germany’s ruling ‘traffic light’ coalition open the way to more effective governance for Europe’s largest economy? What bearing will political uncertainty have on its financial markets? How will Donald Trump’s pending return …
We expect the policies that will be delivered during Donald Trump’s second term to be a headwind for equities in the US. We still anticipate strong gains next year on the back of growing AI-enthusiasm, but not far beyond as the resulting bubble bursts. …
8th November 2024
With the US election out of the way and markets starting to settle down after some dramatic swings yesterday, attention now turns back to the more humdrum topic of central bank policy and the near-term economic outlook. While the global easing cycle is …
7th November 2024
We have revised some of our key market forecasts in response to Donald Trump’s victory and the news that the Republicans are on course to regain full control of Congress. These include higher projections for the 10-year Treasury yield and the greenback. …
This early edition of the Capital Daily provides our first thoughts on the market reaction to the likelihood of a second Trump term. The US election has seen a stark shift to the Republican Party, with Trump claiming victory in the Presidential race and …
6th November 2024
Although the outcome of the US election plainly matters for Treasuries, there is a risk of overegging this. After all, a large part of the recent moves in Treasury yields seem to have been due to the economy rather than the election. Our sense is that a …
5th November 2024
Investors are braced for turbulence in the Treasury market, even allowing for the big moves that we’ve already seen in it recently. That’s hardly a surprise, given the result of tomorrow’s election is on a knife-edge and the contrast in the protagonists’ …
4th November 2024
October’s distorted payrolls probably won’t change the outlook for the Fed, which we expect to cut by 25bp next week. Instead, earnings season and the looming US election continue to dominate markets. Treasury yields initially plunged in response to the …
1st November 2024
We think that if Vice President Harris wins the US presidential election next week, she would be more likely to stick to policy continuity, and EM risk premia would remain low. If former president Trump is elected, we would expect an initial adverse …
While the market fallout from yesterday’s UK budget announcement is still a very long way from the 2022 “mini-budget” debacle, the surge in Gilt yields and fall in sterling over the past couple of days has some similarities to that episode. A meltdown of …
31st October 2024
While inflation in the US and elsewhere has generally converged towards target this year, it might continue to haunt central bankers for a while yet, and in turn keep investors on their toes. There was nothing too scary in the inflation data released …
The sell-off in the Gilt market after today’s budget announcement in the UK probably reflects concerns that the Chancellor’s fiscal plans will result in an increased a supply of bonds and less monetary easing. We will be reviewing our forecast for Bank …
30th October 2024
This Budget is big, both in the way it defines the government’s plans and the money it raises and spends. The key point is that it loosens fiscal policy relative to previous plans and is therefore consistent with GDP growth perhaps being a bit stronger …
With just a week to go in the pivotal US election, the race remains close and markets look increasingly tense. We see three key points to consider as the vote draws nearer. First, while Trump appears to have the momentum, the election is far from a done …
29th October 2024
Equities have held up well in the face of the sell-off in Treasuries over the past month, although they have struggled to break to new highs over the past couple of weeks. But w e doubt that pattern will last; our base case remains that bond yields will …
28th October 2024
While the perceived probability of a Trump win has increased over recent weeks, we believe there is still ample scope for a sizeable repricing across markets once the election outcome becomes clear. We think a Republican “sweep” would probably lead to …
The possibility of looser fiscal policy than previous planned in the upcoming UK Budget on 30 th October suggests the risks to our forecast that the 10-year gilt yield will fall to 3.50% by end-2025 are skewed to the upside, even if a repeat of the …
Our central forecast is that there won’t be a fiscally induced ‘crisis’ in the Treasury market. But there is clearly a risk of yields rising in response to higher term premia and more restrictive monetary policy than would otherwise be the case, if the US …
25th October 2024
We suspect Asian currencies would underperform under a Trump presidency, even if they don’t seem to have been affected worse than others by the apparent rise in his chances of winning lately. At face value, it’s surprising how well Asia’s currencies …
We think a pick-up in global growth and the further inflation of a US equity bubble mean prospects for euro-zone equities are generally promising, despite sluggish economic growth in the region. European equities have risen, on net, so far today, more so …
24th October 2024
We held online Drop-In sessions this week to discuss how we factor the US election into our thinking on the macro and market outlook for the US and other parts of the world. See here for a recording of the session focused on the US and here for the rest …
We expect the Japanese yen to bounce back before long, putting more pressure on the Japanese stock market, at least in local currency terms. The Japanese yen has fallen by more than 1% against the US dollar today, adding up to a roughly 8% fall since its …
23rd October 2024
