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We held a Drop-In on Wednesday to discuss what the evolving outlook for monetary policy and global growth means for our markets forecasts. This Update recaps the key questions we addressed in the Drop-In and answers several of the questions that we …
24th June 2022
We now think that the yields of 10-year developed market (DM) government bonds will peak earlier and, in some cases, at higher levels than we previously expected. That reflects a view that tightening cycles in many DMs will be more front-loaded and …
22nd June 2022
We think that stock markets in the emerging world will continue to struggle alongside their developed market (DM) peers over the next eighteen months or so, for four main reasons. The MSCI Emerging Markets (EM) Index has also struggled during the renewed …
20th June 2022
We think the sell-offs in US government bonds and equities have further to run, and have revised our forecasts for 10-year Treasuries and the S&P 500 accordingly. US bonds and stocks have been volatile this week amid a raft of central bank decisions, …
17th June 2022
We think the Bank of Japan (BoJ) will widen the tolerance band around its 10-year Japanese Government Bond (JGB) yield target, and that the yield will consequently rise by around 25bp. But there is a clear risk of a larger and more disorderly sell-off …
15th June 2022
The prospect of tighter Fed policy than we had previously envisaged (see here ) presents upside risks to our forecasts for the 10-year Treasury yield as well as downside risks to our forecasts for the S&P 500. The moves in financial markets have been …
14th June 2022
The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the …
13th June 2022
We are raising our forecasts for euro-zone 10-year government bond yields and “peripheral” spreads to reflect the ECB’s further hawkish shift as well as its apparent unwillingness to commit to a strong backstop for peripheral bond markets . The sell-off …
10th June 2022
We don’t expect long-term inflation compensation to continue to tumble, and think long-term government bond yields will bounce back before long . After increasing significantly over the past year or so, long-term inflation compensation has fallen quite …
26th May 2022
Despite its struggles yesterday, we think the S&P 500 may have some way further to fall as the economy slows and more companies struggle to meet optimistic earnings expectations. Yesterday’s fall in the S&P 500 clearly stands out from what has already …
19th May 2022
The current struggles of the S&P 500 don’t have much in common with most previous “bear markets”, but we still think one is likely as the Fed presses ahead with monetary tightening . Although it has recovered a bit lately, at the time of writing the S&P …
18th May 2022
The S&P 500 might continue to struggle if, as we expect, slowing economic growth and rising labour costs causes corporate profits to grow by less than most anticipate. While below-expectation Q1 earnings reports from a few high-profile US companies have …
13th May 2022
While our central forecast remains that euro-zone “peripheral” spreads will rise only a bit between now and the end of 2022, we think that the risk of a significant increase in spreads has risen . Notwithstanding a tick-up today, the yield spreads of …
We expect concerns about global economic growth and monetary policy tightening to push up the spreads of developed market (DM) corporate bonds a bit further over the coming year . After holding broadly steady at low levels for most of last year, the …
6th May 2022
With more monetary tightening to come from the Fed, we think the rise in Treasury yields has further to run and that equities will continue to struggle. At face value, this week’s Fed announcements were quite hawkish : the central bank hiked its target …
5th May 2022
This Update presents our revised forecasts for the yields of developed market (DM) long-term government bonds, in light of recent market moves and changes to our expectations for monetary policy. We argued last month that the increase in DM government …
22nd April 2022
Earnings expectations for listed euro-zone companies look, as a whole, a bit optimistic to us given the economic impact of the Russia-Ukraine war and Western sanctions. This feeds into our view that the region’s benchmark equity indices will, in general, …
8th April 2022
While the prospect of a euro-zone break-up looks more remote than during the 2017 French presidential campaign, the possibility of Marine Le Pen taking power is still a major risk to euro-zone financial markets. As we discussed here and here , the recent …
7th April 2022
This tightening cycle looks set to be much more synchronised across developed market economies than the last one, which we think creates more scope for rises in bond yields across countries but could limit any further flattening of the US yield curve. …
5th April 2022
While we suspect the recent recovery in the MSCI China Index may have further to run, we don’t think the stage is set for a big rally either . After falling sharply at the beginning of the year, China’s stock market appears to have turned a corner in …
1st April 2022
While we think that the war in Ukraine and Fed tightening will weigh on US corporate earnings, we still expect those earnings to grow in the next two years or so. This underpins our view that US equities will make some further small gains over that time . …
28th March 2022
The reinvestment of oil revenues into US markets probably helped avert a rout in Treasuries during the mid-2000s hiking cycle, but even with oil prices on the rise again we don’t expect so-called “petrodollars” to halt the current slide in Treasuries. …
24th March 2022
We think the war in Ukraine and a more hawkish Fed will cause the yield of 10-year US Treasuries and the US dollar generally to end 2022 and 2023 a bit higher than we had previously anticipated. We now also expect DM equities to be a bit lower by the end …
18th March 2022
We think the Fed’s tightening cycle will lead to the 10-year Treasury yield ending this year and next a bit higher than we had previously anticipated, although we still expect it to rise only gradually. The Fed has started its tightening cycle in a …
17th March 2022
Some of the effects of the war on markets have begun to unwind in recent days, but we think a few of the changes it has brought about will last even if the mood in markets continues to improve. While the situation remains volatile, at the time of writing …
16th March 2022
Although a gap between euro-zone corporate and peripheral sovereign spreads opened up after the start of the Russia-Ukraine war, it has begun to close recently and we think that it will shrink further . The spreads between the yields of long-dated …
11th March 2022
The war in Ukraine and sanctions on Russian oil trade have increased oil prices by as much as 40% so far this year, but we don’t think higher energy costs will derail the US stock market as they might have at times in the past. Oil prices have surged in …
The US stock market has so far held up fairly well despite the Russia-Ukraine war. We think it will probably manage to make small gains over the rest of the year, although there are clear downside risks. The Russia-Ukraine war has sent tremors through …
9th March 2022
This Update discusses three ways in which the outbreak of war in Ukraine has called into question our asset allocation views. While the situation is fluid and the outlook especially uncertain, it also provides our initial thoughts on how things might play …
4th March 2022
The onset of other major conflicts and military-related crises have often seen global equity indices tumble, while moves in developed market government bond yields have depended on how energy prices and central banks responded. This suggests to us that …
While the war in Ukraine may well push down the yields of long-dated developed market (DM) government bonds further in the near term, we think that a sustained rally in bonds is unlikely unless the war causes a sharp fall in output in major DMs, which, …
2nd March 2022
New sanctions on Russia have led to a sharp plunge in the ruble, and an effective freeze of most of the country’s financial markets. We think that the outlook now depends mainly on the extent to which this marks the start of an enduring break in Russia’s …
28th February 2022
Amid all the volatility in global markets during the Russia-Ukraine conflict so far, we think there are several key lessons we can draw from the relative performance of bonds, equities and currencies that will help to inform how they might evolve from …
25th February 2022
While the mood seems to have improved a little at the time of writing, the S&P 500 closed yesterday more than 10% lower than its recent peak at the start of the year, satisfying the criteria for a stock market correction for the first time since 2020. The …
23rd February 2022
With tensions between Russia and Ukraine continuing, the risk of a conflict with far-reaching economic consequences remains uncomfortably high. This Update considers what the impact on global financial markets has been so far, and the potential …
18th February 2022
We think that the gap between the yields of 10-year German and Swiss government bonds will re-emerge over the next couple of years as the ECB tightens policy more quickly than the SNB. Prior to the pandemic, there was a spread between the yield of the …
17th February 2022
We think that yields of 10-year emerging market (EM) local-currency (LC) government bonds may, in general, increase by more in Asia than in other regions by end-2023, in contrast with the pattern over the past year. The main exception is in China, where …
11th February 2022
We continue to expect 10-year government bond yields across developed markets (DMs) to rise over the next few years. But given some upward revisions to our policy rate forecasts for the euro-zone, Australia and the UK we now think yields there will be …
We think upcoming “quantitative tightening” by the Fed will contribute to further increases in the yields of long-dated Treasuries this year and next. Investors have ramped up their expectations for Fed rate hikes lately, pushing Treasury yields to …
10th February 2022
We doubt the S&P 500 will get much of a boost from upward revisions to earnings forecasts between now and the end of 2022, which is one reason why we expect the index to make only small gains this year. What’s more, notwithstanding their recent struggles, …
4th February 2022
The sell-off in Russia’s financial markets in response to the reassessment of the likelihood of conflict with Ukraine has pushed up the risk premium on Russian assets to a similar level to that which followed the annexation of Crimea in 2014. There is …
27th January 2022
Our baseline forecast envisages that US corporate bond spreads rise only slightly as the Fed raises interest rates over the next couple of years. But we think the risks to this forecast are skewed to higher spreads. We think that the Fed will hike …
21st January 2022
The deadlocked end to talks between Russia, the US and NATO and subsequent hawkish noises from Russian officials have caused a risk premium to emerge on Russian asset prices and will keep the prospect of tighter Western sanctions on the table. The …
14th January 2022
Even though we doubt that China’s equities will fare anywhere near as badly over the next couple of years as they did in 2021, we do not expect them to make strong gains from here either. This time last year we outlined our view that China’s equities …
We do not think the returns from many financial assets will be as good in 2022 as they were in 2021. For a start, we envisage a sell-off in government bonds in most places, reflecting the outlook for monetary policy. And, in general, we foresee an …
13th January 2022
We continue to expect monetary tightening to push up 10-year government bond yields across developed markets (DMs) but we now forecast them to reach a higher level than we had previously anticipated, especially in the US, Germany and the UK . Last year, …
12th January 2022
While we don’t think the stock market’s falls this week mark the start of a sustained rout, we do expect Fed tightening to curb the upside for mid- and large-cap US equities over the next couple of years. And tighter monetary policy might also weigh a bit …
7th January 2022
We are revising down our end-2022 and end-2023 forecasts for the 10-year US Treasury yield by 25bp each, to 2.00% and 2.25%, respectively. This compares to its current level of ~1.4%. Admittedly, we now project that the Fed will raise its policy rate far …
17th December 2021
In our view, analysts’ expectations for earnings across the emerging world over the next couple of years generally look a bit optimistic. And, since we don’t expect a major increase in valuations, we think that emerging market (EM) equities will make only …
14th December 2021
Even though headline US CPI inflation may now have peaked, we still think long-term inflation compensation could rise a little over the next couple of years. Data released today showed that US headline CPI inflation hit in November its highest level since …
10th December 2021