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A surprise win for Labour at Thursday’s election could be a major shock to UK equity markets. There are few recent examples of an unexpected sharp left-ward political turn in a developed economy. But there are some historical precedents that help put a …
6th December 2019
Given our pessimistic view of China’s economy and the trade war, we think that the underperformance of developed market (DM) companies exposed to China will continue. Admittedly, the MSCI index that tracks those firms has actually done pretty well this …
4th December 2019
Despite President Trump’s frequent complaints about the strength of the dollar, its valuation is not especially high in our view and is unlikely to prevent it from rising further in the next couple of years. Admittedly, the US currency has risen a long …
2nd December 2019
Ecuador this month joined the handful of frontier economies where sovereign dollar bonds are trading at levels commonly associated with default. (See Chart 1.) But with the IMF likely to stand by the government, we think that default fears are overdone …
28th November 2019
Although we think that the Fed is now done cutting rates, we think that more easing is coming outside the US and that major central banks will remain net buyers of bonds. With this in mind, we forecast that government bond yields in most developed …
We doubt that the global pick-up in government bond yields will resume anytime soon, so domestic monetary policy is likely to be the key driver of bonds in Switzerland and the Nordics. With that in mind, while we think that bond yields in Norway will not …
25th November 2019
The Labour Party’s manifesto contains several measures which, if implemented, would have a significant negative effect on UK equites. A surprise Labour win could send UK equities tumbling, despite a softer Brexit. Labour’s manifesto is one of the most …
22nd November 2019
US Treasury yields have rebounded over the past few weeks, as worries about the US-China trade war and the outlook for the global economy have eased somewhat. But while we don’t expect them to revisit their lows, we also think that Treasury yields are …
20th November 2019
Optimism about trade has been a factor behind the rally in global equities in the past month. But with a “mini-deal” now largely discounted in the markets, and economic growth unlikely to do better than stagnate over the next couple of years, we suspect …
19th November 2019
Although volatility in the US stock market is expected to remain very low, we don’t think that this is a worrying sign that investors are being complacent. That is because big stock market corrections are usually the cause , rather than the symptom, of an …
15th November 2019
EM equities have continued to rise over the past month, seemingly driven by optimism about an imminent US/China trade deal and some improvement in the economic data. But we are sceptical that the rally will last, and forecast that EM equities will tread …
13th November 2019
The loss of the South African government’s final investment grade credit rating is already largely priced in, but there are still reasons to be downbeat on the country’s government bonds, and the rand . Concerns about the South African government’s large …
11th November 2019
If the Conservative Party wins an outright majority in the upcoming general election on 12 th December, as polls suggest is the most likely outcome, there is potentially significant upside for UK equities. Since the 2016 referendum, UK mid- and large-cap …
8th November 2019
Polls suggest that the general election in Spain this weekend will not end the political deadlock there. That is the key reason why, despite brighter growth prospects, we doubt that bonds and equities in Spain will do better than those elsewhere in the …
7th November 2019
Against a backdrop of stubbornly-low inflation and rising unemployment, we now think that the RBA will launch quantitative easing (QE) in 2020. Here, we consider the implications for Australia’s assets. Assessments of the impact of QE elsewhere are not …
The Riksbank appears determined to raise interest rates into an economic slowdown. While higher policy rates may provide some support for the Swedish krona, we still think that it will continue to depreciate. To the surprise of most analysts, ourselves …
1st November 2019
We have revised up our end-2019 forecasts for equities, which previously pointed to a large correction. But even without this big pothole, we continue to think that the road ahead for them will be bumpy. Admittedly, we had underestimated the extent to …
31st October 2019
The spotlight has shifted back onto weak sovereign debt positions in Frontier Markets this month after the election of a left-wing president in Argentina and growing political instability in Lebanon. As we see it, debt write-downs are the only way out for …
The yield of 10-year government bonds in Greece is now only slightly above that of 10-year government bonds in Italy. Given Italy’s comparatively poor growth and debt dynamics and greater political risk, we think that it is only a matter of time before …
30th October 2019
Equities in the euro-zone have outperformed those in the US since early October. While we expect this trend to continue, we think that both will fall in the rest of this year, as global growth slows further. While both the MSCI EMU Index and the MSCI USA …
24th October 2019
We think that the recent weakness in emerging market (EM) currencies will continue during the rest of 2019, as a weaker global economy triggers a fresh bout of risk aversion. In 2020, we think that the renminbi and the currencies of other Asian EMs with …
23rd October 2019
While we think that there is still a bit more scope for the Norwegian krone to fall against the euro, we expect the currency to bounce back over the next couple of years, as the country’s terms of trade improve. For all the talk about krone weakness, its …
We expect the rally in corporate bonds in the US, UK and euro-zone to unwind a bit in the rest of 2019 as global growth slows further. Next year, we think that corporate bonds in the US and the UK will continue to struggle, but those in the euro-zone will …
18th October 2019
Though government bond yields have rebounded over the past week, inflation compensation remains near record lows in the US and the euro-zone. In our view, this is unlikely to persist, especially in the US, which is one reason why we expect Treasury bond …
17th October 2019
The corporate earnings season starting this week in the US could provide the trigger for the drop in the S&P 500 that we forecast to happen this year. Indeed, we think that earnings will disappoint expectations, and doubt that Fed policy or a big …
15th October 2019
As the outlook for the global economy continues to worsen, we expect risky assets generally to struggle over coming months and emerging market equities to fall further. East Asian markets are likely to fare worst, in our view, while Indian equities hold …
11th October 2019
The yield of 10-year government bonds in Portugal has fallen below that of their counterparts in Spain this week after Portugal’s Socialist Party retained power in Sunday’s legislative elections. While we think that the yield spread will stay low by past …
We expect appetite for risk and monetary policy to continue to be more important factors than commodity prices in determining the direction of the Aussie, Kiwi and Loonie. With that in mind, we think that the relative resilience of the Loonie so far this …
9th October 2019
As the outlook for the global economy grows gloomier, the US dollar is strengthening towards multi-year highs. We expect it will appreciate further as safe haven demand intensifies over coming months. After rising by 5% in 2018, the US dollar has …
4th October 2019
While the hike to Japan’s sales tax means its economy will probably contract in Q4, we suspect that the impact on bonds and equities there will be fairly small. However, we still think that Japan’s stock market will fall by the end of this year, as waning …
3rd October 2019
We don’t expect the valuations of US equities to continue to rise over the rest of 2019. In fact, we expect the price/earnings (P/E) ratio of the S&P 500 to fall, and this is a key reason why we forecast that the index will drop by about 15% from its …
The weakest balance sheets in the emerging world are concentrated in the Frontier Markets and, as a result, balance of payments crises occur more regularly. This lies behind Venezuela’s crisis, but also a growing inflation problem in Zimbabwe and (to a …
30th September 2019
Investors’ continued optimism about corporate earnings in the US is hard to square with our view that economic growth there and in the rest of the world will remain weak. That is the key reason why we expect US equities to perform poorly during the rest …
27th September 2019
We have revised up our forecasts for India’s Sensex equity index following the corporate tax reform there. And more generally, we expect it to be one of the best performers among EM stock markets over the next few years, even if it falls back a little …
The combination of a broad-based easing cycle in emerging markets and strong demand for risky assets has pushed local currency emerging market (EM) sovereign yields down sharply in 2019. However, we expect that rally to go into reverse by the end of the …
25th September 2019
The strong performance of US equities this year has continued to be, at least in part, fuelled by expectations that growth in corporate earnings there will be much faster than elsewhere. Nonetheless, given our view that the US economy will slow further in …
20th September 2019
Given our view that the US economy will avoid a recession, we doubt that the Fed will deliver as many rate cuts as investors anticipate. As such, we think that Treasury yields will rise substantially next year. To re-cap, the Fed voted this week to cut …
Although the oil price has fallen back since the weekend’s attacks on production facilities in Saudi Arabia, it could surge again if there are further strikes or if tensions in the Middle East escalate into a full-blown conflict. In that event, we think …
19th September 2019
Despite what Mr Trump’s tweet yesterday appears to suggest, we don’t think that the ECB is “trying, and succeeding, in depreciating the Euro”. And although we expect the euro to weaken further against the dollar this year, we think that appetite for risk, …
13th September 2019
The valuations of EM assets have fallen significantly from their peaks in this cycle around the start of last year, but remain above their averages since the Global Financial Crisis (GFC). In our view, they could easily fall further if the global economy …
12th September 2019
Italian assets have rallied since a new ruling coalition between the Five Star Movement (M5S) and the Democratic Party (PD) was formed. While we have revised our forecasts to reflect the reduced political risk associated with the new government, we still …
11th September 2019
Although we are revising down our once-bullish forecast for the 10-year US Treasury yield, we think that it has fallen too far and will rebound to 1.75% by the end of 2019 and rise significantly next year. Since early October 2018, the yield has fallen …
6th September 2019
The last few weeks have been kinder to EM financial markets than the start of August, when equities and currencies slumped as the US-China trade war ramped up again. Even so, neither has performed particularly well, and we think that the stage is set for …
5th September 2019
Besides Argentina, EM sovereign debt risks are most acute in the smaller frontier markets. Investors have, rightly in our view, become more concerned about Lebanon’s public finances. And the experience of Argentina suggests that the country’s bond spreads …
30th August 2019
We doubt that stocks that reliably pay high dividends will fare better than their peers during the rest of this year, as we think that bond yields are unlikely to fall much further and might even bounce back a bit. Dividend aristocrats are companies that …
29th August 2019
As the global economy slows, we think that expectations for bank earnings will prove too optimistic and that relatively high bank equity valuations in the US, Canada, Australia, and the Nordics are likely to fall. Bank equities have struggled more than …
28th August 2019
Yield curves have inverted in most advanced economies over the past couple of weeks, including in the US, Germany and the UK, sparking fears of an imminent global recession. While most advanced economies will just avoid falling in a recession in our view, …
23rd August 2019
While the Swedish krona and the Norwegian krone are now near the record lows they reached against the euro in 2008-09, we think that monetary policy and rising risk aversion will push them down further. The Swedish and Norwegian currencies have …
21st August 2019
The Japanese yen has continued to appreciate and is now close to our year-end forecast of ¥105/$. Though the drivers behind its strength may shift, we expect upward pressure on the yen to persist. Since President Trump’s latest escalation of the …
16th August 2019
We think that emerging market (EM) currencies will continue to struggle over the rest of 2019 as the global economy remains weak for longer than investors anticipate, the trade war escalates further and political risks, notably in Argentina, remain high. …
15th August 2019