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We are sticking to our forecast that the 10-year German government bond (Bund) yield will end this year at around -0.50%, even though it has recently fallen through this level following a renewed surge in COVID-19 cases in Europe. To recap, the yield of …
22nd October 2020
We are upgrading our already above-consensus forecast for the Canadian dollar, as we expect higher oil prices, stronger-than-expected GDP growth, and favourable interest rate differentials to drive a continued appreciation over the next two years. Those …
19th October 2020
Some measures of valuation and risk-taking in Chinese equities have approached levels last seen prior to their crash in 2015. We think another crash is unlikely, but doubt equities will make much more headway in local currency terms. To recap, over a …
13th October 2020
The yield of the EMBI Europe has risen since June and we doubt that it will fall back much over the coming year if geopolitical tensions involving Turkey and Russia persist . The yield of JP Morgan’s EMBI Europe Index (EMBI Europe) of emerging European …
8th October 2020
We have revised up our already-bullish forecasts for the Australian dollar and the New Zealand dollar against the US dollar over the next few years, to reflect changes to our outlook for the Chinese renminbi. Crucially, though, this view hinges on …
Although the SNB meets the US Treasury’s criteria for a “currency manipulator”, we doubt this would deter it from intervening further in the foreign exchange market if required to keep the franc stable. New data detailing the SNB’s FX transactions confirm …
7th October 2020
In this Update , we consider the near-term outlooks for the yen, Japanese equities and government bonds under new Prime Minister Yoshihide Suga , and compare them with their performance in the early years of the tenure of his predecessor, Shinzo Abe. Abe …
29th September 2020
Although the Norwegian krone has been the worst performing G10 currency so far in 2020 (see Chart 1), we expect it to make up some lost ground in 2021 even if it falls a bit more in the near term. The US dollar rose sharply against most other G10 …
Despite falling back a little this week, we still expect most currencies in the Asia-Pacific region to make headway against the dollar over the next couple of years, led by a stronger renminbi. As we set out here , we have changed our view on the Chinese …
25th September 2020
While we continue to forecast that equity markets will make further ground in the next few years, the rapid increase in COVID-19 cases in Europe poses a downside risk to our projections. We have been arguing for a while that with the major economies …
21st September 2020
Although policymakers in Japan may prefer a weaker yen, in our view it is more likely to rise than to fall. When Japan’s retiring prime minister Shinzo Abe came to power in late 2012, one of the key aspects of his “Abenomics” economic package was the …
17th September 2020
The renminbi has risen 5% against the US dollar since May, to its strongest since early 2019. And with China on course for a more pronounced recovery than elsewhere, its external position the strongest in a decade, and onshore yields unusually attractive …
Despite the recent resurgence in uncertainty about the UK's future relationship with the EU, we think that it is still possible to make a positive case for UK assets. Although uncertainty around the Brexit process has re-emerged in the past few days, it …
11th September 2020
Despite its recent rally, the euro is not particularly strong in our view, and we think that it could well rise further over the next couple of years. Since its lows in mid-March, the euro has gained about 10% against the US dollar, rising from $/€1.06 to …
While we think that nominal interest rates and bond yields in developed markets will remain around their current ultra-low levels for some time, we think that their real counterparts will fall further in the US relative to the euro-zone and Japan. In our …
28th August 2020
We suspect that the coronavirus-induced local-currency underperformance of MSCI’s Japan and Switzerland indices relative to its USA Index will unwind as the world slowly gets back to normal. To recap, after falling by less in the wake of the coronavirus …
20th August 2020
While we think the US dollar will weaken a bit further this year, suggestions that its role as the world’s primary reserve currency is in jeopardy are wide of the mark in our view. Although it has stabilised a bit over the past couple of weeks, the dollar …
19th August 2020
Although we still think that “risky” assets will make further ground between now and the end of 2022, we no longer expect “safe” government bond yields to rise. We have also become more positive on the prospects for bonds in the euro-zone periphery . Back …
12th August 2020
Policymakers in a few emerging markets have turned to unconventional monetary policies to combat the economic fallout from the coronavirus pandemic, and some may go further into outright financial repression . This note sets out some of the potential …
31st July 2020
Over the past few months, the euro and the BTP-Bund spread have moved closely together, with the euro strengthening as the BTP-Bund spread narrowed and vice versa. (See Chart 1.) We think that this pattern will persist over the remainder of this year . …
24th July 2020
Although the US dollar has stabilised over the past month or so as fears about a second wave have held back the rebound in risky assets, we continue to think that it will lose further ground over the rest of 2020, unless the resurgence of new cases …
20th July 2020
We don’t think that the valuations of equities in general are particularly stretched. In any case, valuations are like pieces of elastic – they can stretch a lot before they snap. In our view, valuations won’t prevent equities from gaining more ground, …
17th July 2020
While we remain optimistic about the outlook for equities and other risky assets, the rapid increase in new coronavirus cases, especially in the US, poses a key downside risk to our generally optimistic forecasts. As we set out here , our forecasts for …
8th July 2020
News that a major US shale oil producer filed for bankruptcy last week has raised concerns about a new wave of coronavirus-induced corporate defaults. But even if the default rate does pick up in the coming months, we don’t think this will prevent credit …
7th July 2020
While the euro and many euro-zone assets have rallied significantly over the past two months, we think that there is scope for them to make more headway this year . To recap, during this period the euro has gained ground against the US dollar and is now …
26th June 2020
If we are right that commodity prices will make up more ground as economies continue to reopen, the rally in commodity currencies may have further to go. Australia, Canada, New Zealand and Norway are heavily reliant on exports of commodities (see Chart …
19th June 2020
While we think that much of the rebound in emerging market (EM) currencies is now behind us, we still expect that most of them will make a bit more headway against the dollar in the second half of the year. Last week we revised down our forecast for the …
16th June 2020
We now expect that the US dollar will depreciate further as risky assets resume their rebound and the global economy recovers from the coronavirus pandemic. At the start of the year, we forecast that the dollar would strengthen further in 2020 as …
12th June 2020
With monetary policy likely to remain loose for a long time and the world’s largest economies gradually re-opening, our view remains that equity markets will continue to make ground over the coming years. Back in March , when global equities were down by …
11th June 2020
While sovereign bond yields in most developed markets are unlikely to reach new lows and, in our view, will stay around their current levels for some time, local-currency sovereign bond yields in some emerging markets could yet fall further, especially if …
5th June 2020
Additional stimulus from China strengthens our view that the rebound in equities will continue, especially in emerging markets. But the effect is unlikely to be as big as in 2008-09, and China’s increasingly-tense relationship with the US risks …
29th May 2020
Although the S&P 500’s rally over the past two months is remarkable, we don’t think that it reflects excessive optimism among investors. In our view, equities can rise further from here. The S&P 500 has risen by over 30% from its intraday low on 23 rd …
27th May 2020
Although uncertainty about the post-virus prospects for the global economy should continue to support the US dollar, we think that the ongoing recovery in risky assets and the fall in US interest rates will start to pull the currency down from its …
19th May 2020
We don’t think that the recent outperformance of automakers’ equities will continue, even if the global economy starts to recover and equity markets recoup more of their coronavirus-induced losses. Taking a step back, the performance of auto shares has …
15th May 2020
Even though some economies in Latin America and EMEA are still struggling to contain coronavirus outbreaks and are likely to recover only slowly afterwards, we doubt that their equities will continue to underperform if conditions in the global economy …
5th May 2020
While we remain of the view that the ECB will eventually step up to the plate and increase its purchases of government bonds, concerns about Italy’s debt sustainability and its commitment to the euro mean that we think that the BTP-Bund spread will only …
1st May 2020
We suspect that banks’ share prices will rebound a bit from here, after falling a long way. Nonetheless, we don’t think that banks will outperform other sectors significantly, or for long, even if the global economy starts to recover and equity markets …
23rd April 2020
We continue to think that most EM currencies will end the year higher than their current levels, even if they face further turbulence. But we don’t expect them to recover as strongly as they did after the GFC. As we have discussed previously , emerging …
17th April 2020
If, as we expect, the global economy starts to recover in the second half of the year, the yields of core government bonds are likely to rebound a bit further. But we think that weak inflation and continued ultra-loose monetary policy will keep yields at …
9th April 2020
We think that the earnings of firms in the MSCI EM Index will fall sharply this year as the coronavirus pandemic reduces world trade by a fifth and commodity prices only recover slightly. But with much of this outcome probably already discounted, we think …
8th April 2020
Although the valuation of the overall MSCI Emerging Markets (EM) Index is not unusually low, EM equities outside Asia and in some “cyclical” sectors now appear quite attractively valued by past standards. As in the case of developed market (DM) equities, …
7th April 2020
Although analysts’ expectations for corporate earnings have been revised down quite significantly since the coronavirus began to spread around the world, stock prices suggest that investors are braced for an even worse outcome. With that in mind, we think …
2nd April 2020
We forecast that the credit spreads of euro-zone peripheral bonds will fall back further this year and remain low in 2021 thanks to unwavering support from the ECB. But public finances will be deteriorating, especially in Italy, which raises the risk of a …
While the coronavirus epidemic will probably weigh on the US economy much beyond the end of this year, we suspect that the S&P 500 will start recovering in the second half of 2020. According to the NBER’s Business Cycle Dating Committee, there have been …
1st April 2020
While the worst may be yet to come for emerging market currencies, we expect that most will end this year stronger than they are now. Emerging market currencies have had a difficult year so far : our equal-weighted index of twenty large EM currencies has …
In our view, global equities are not as “cheap” as the recent falls in price/earnings ratios seem to suggest. That is because earnings expectations are likely to be revised down much further as the crisis unfolds. Although the selling pressure in stock …
27th March 2020
While we think that most currencies will eventually regain much of the ground that they have recently lost to the US dollar, we don’t expect that process to start until the pandemic has clearly passed its worst . The US dollar has strengthened this year …
24th March 2020
The slump in the prices of commodities has hit hard the currencies of the countries whose fortunes depend heavily on them. (See Chart 1.) But if we are right and commodity prices eventually recover as the coronavirus pandemic is brought under control, …
23rd March 2020
Our view remains that, despite policymakers’ best efforts, a sustained turnaround in equity markets will only come once the virus starts to fade. That hasn’t happened yet. So, we suspect that they will fall a bit further in the coming months, despite …
20th March 2020
Judging by the bear markets of the past fifty years or so (see here ), the valuation of the US stock market can make a big difference to how far it falls and how long it takes before it reaches a floor. With that in mind, this note fleshes out what role …
13th March 2020