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We think that government bonds in Italy will come under pressure again in the coming months, given the brewing political crisis there and the resulting increased uncertainty over the country’s fiscal policy. Last week, Deputy Prime Minister Matteo Salvini …
15th August 2019
Government bonds have rallied further in developed economies in recent weeks, fuelling speculation that they are in a bubble which will burst at some point. We disagree. Admittedly, we think that the rally has gone a bit too far. But we doubt that bond …
9th August 2019
The profits of Corporate America have shrunk during the past four years according to revised estimates recently published by the US Bureau of Economic Analysis (BEA). By contrast, S&P 500 operating earnings per share (EPS) have grown by nearly 50%. …
5th August 2019
The strong performance of both equities and government bonds this year reflects a view that monetary easing will put the global economy back on track very soon – an outlook that seems too benign to us. Central banks around the world are likely to loosen …
1st August 2019
The recent rally in frontier sovereign dollar bonds is unlikely to be sustained (see Chart 1) and we expect spreads to widen in Argentina, Ukraine and parts of the Middle East. We have raised concerns before about weak balance sheets in Bahrain and Oman. …
30th July 2019
The Swiss franc has been the best performing G10 currency over the past three months, despite falling back a bit after the ECB meeting on Thursday. We think that monetary policy as well as safe-haven flows will continue to support it against the euro …
26th July 2019
Judging by their recent performance, more bad news is priced into German than US equities. As a result, if we are right and risky assets around the world come under pressure as global growth slows further, we suspect that the German stock market will fall …
24th July 2019
Emerging market (EM) equities have continued to recover from their sharp falls in May, but we do not think that they are out of the woods this year. Expectations for EM corporate earnings seem to be based on assumptions about the outlook for the global …
17th July 2019
While we think that the twists and turns of the UK’s journey out of the European Union will have a bearing on Gilts and sterling, that won’t be the only factor driving them. What’s more, we doubt that Brexit will matter much for UK equities. There are …
While we are lowering our end-2019 and end-2020 forecasts for the 10-year BTP yield, we remain pessimistic about the near-term prospects for government bonds in Italy. Back in January, when the yield of 10-year Italian government bonds (BTPs) was roughly …
15th July 2019
We think that there is very little, or no, scope for rate expectations and bond yields to renew their downward trend in most economies, given how far they had already tumbled before their recent rebound. The dark blue bars in Chart 1 show how investors …
12th July 2019
Christine Lagarde’s nomination as ECB President makes us even more optimistic about the near-term outlook for government bonds in the euro-zone and reinforces our view that corporate bonds there will hold up better than elsewhere. We have argued for some …
5th July 2019
While the real returns from a wide variety of assets were positive in the first half of this year, we don’t expect the good news to last. We project that those from US equities and government bonds, for example, will both be negative in the second half of …
3rd July 2019
We have long forecast the yen to strengthen to ¥105/$ by the end of 2019, primarily based on our expectation that a sell-off in global equities would boost the demand for safe havens. While we remain of this view, the policy stance of the Bank of Japan …
28th June 2019
Frontier financial markets have made gains over the past month, but have generally underperformed their emerging market counterparts. The performance of equity markets has been mixed. And currencies in most cases have only edged up against the dollar. …
27th June 2019
While the performance of the US stock market in the Fed’s last four easing cycles was varied, our view remains that it will fall in the next one, which we expect to span from late-summer 2019 to spring 2020. The S&P 500 soared by nearly 15% in the …
Although we expect the FOMC to loosen policy substantially by the spring of 2020, we are not forecasting a renewed decline in the 10-year Treasury yield to below 2%. This is because we think that the Committee will cut its target for the federal funds …
21st June 2019
Hopes that much looser monetary policy, particularly in the US, will prevent more weakness in the global economy have supported emerging market (EM) assets recently, but we doubt that this will last. … Monetary easing unlikely to drive a sustained …
19th June 2019
Investors are now even more dovish that we have long been about the outlook for monetary policy in the US. As such, we doubt that Treasury yields will drop further. However, we don’t expect looser monetary policy to avert a drop in global stock markets. … …
14th June 2019
Investors seem as pessimistic about the US-China trade war now as they have ever been. Indeed, it would probably come as little surprise to markets if the two sides imposed tariffs on virtually all bilateral goods trade, as we now think is likely. But our …
13th June 2019
Donald Trump’s assertion on Twitter yesterday that a “way too high” Fed interest rate was responsible for a “devalued” euro and other currencies against the dollar is wrong, at least when it comes to the ongoing rise of the greenback since the autumn. For …
12th June 2019
Although the US dollar has pulled back over the past fortnight, we expect it to strengthen once more against most major currencies in the second half of this year as the global economy slows. … Recent setback for the US dollar likely to be …
11th June 2019
The valuations of EM assets are not particularly low, which is one reason why we expect EM financial markets to suffer along with those elsewhere as the global economy disappoints in the coming quarters. … Valuations don’t make a compelling case for EM …
We do not think that the valuations of equities are unsustainably high. Nonetheless, we still expect that stock markets in the US and in the rest of the developed world will slump later this year. This is because we anticipate earnings to come under …
7th June 2019
We think that corporate credit spreads in the US will continue to climb this year, as the economy there slows. Our forecast is for the spreads of speculative-grade bonds to rise by well over 100bp, on average, by the end of 2019. … US corporate credit …
4th June 2019
The spread between the yields of 10-year government bonds in Greece and Italy has fallen sharply following the latest European Parliament elections. We now forecast that it will turn negative, reflecting Italy’s comparatively poorer economic prospects, …
31st May 2019
Sovereign dollar bond spreads widened much further in frontier markets than in other EMs over the past month on the back of concerns over fragile balance sheets. … Balance sheet fears escalate in frontier …
30th May 2019
While it may appear as if the US stock and bond markets are sending mixed signals about the health of the economy, it is common for equity prices to remain high while Treasuries rally in anticipation of looser Fed policy. Nonetheless, the stock market’s …
29th May 2019
The relationship between the renminbi and other emerging market currencies has strengthened in recent years. While the response to renewed US-China tensions has been limited so far, if the renminbi depreciates and risk sentiment sours further, we think …
Equities in Japan have underperformed those in other major developed markets since the start of 2018, owing to a stronger yen and weaker corporate earnings in particular. We expect this underperformance to continue over the rest of this year against …
We think that EM sovereign dollar bonds will generally fare badly in 2019. But their correlations with US equities and Treasuries suggest that they will hold up better in parts of Asia and Latin America. … EM sovereign dollar bonds not all in the same …
24th May 2019
The far superior performance of equities in the US than in the rest of the developed world since the global financial crisis (GFC) can be mostly attributed to healthier growth in corporate earnings. It owes little to a shift in their relative valuation. …
The yield of 10-year government bonds in Italy has moved in the opposite direction to the yields of 10-year government bonds in Spain and Portugal recently. While we don’t expect that to continue, we do think that their yields will continue to diverge …
23rd May 2019
We suspect that the European Parliament (EP) elections will not cause much reaction on bond markets, even if populist parties perform even better than expected. Recent elections in the EU suggest that politics trigger sell-offs only when those parties …
20th May 2019
The 2% fall in the renminbi since the US-China trade war flared up again reflects market pressure more than a deliberate policy choice – Chinese policymakers have actually been trying to slow its slide. If trade talks break down entirely, they would have …
16th May 2019
Although the rebound in US equities since the Global Financial Crisis (GFC) contrasts starkly with their protracted slump after the Great Crash, it has been largely justified by a rebound in corporate profits that did not materialise then. This also …
15th May 2019
Although equities in the euro-zone have fallen sharply in the past week as the US-China trade dispute has flared up again, they are still much higher than they were at the start of the year. This suggests that a lot of good news about trade is still …
We think the assumption in markets that looser policy in the US and China will revive the global economy before very long is too optimistic. We are forecasting further weakness, regardless of whether a trade deal between the two countries is ultimately …
10th May 2019
While the average EM 10-year local currency sovereign bond yield has followed the equivalent US Treasury yield very closely recently, we doubt that this will last much longer. Indeed, we forecast that the Treasury yield will decline over the rest of 2019, …
7th May 2019
We haven’t been surprised by this year’s rise in the US dollar’s value against other “majors”, despite investors’ dovish reassessment of the outlook for Fed policy. Despite its pull-back today, we forecast that the greenback will appreciate further this …
3rd May 2019
We doubt that bond markets will be negatively affected by the European Parliament (EP) elections this month, as the rise of anti-EU parties is already widely anticipated and would not necessarily complicate EU policymaking. In fact, a strong showing by …
Aggregate frontier market GDP growth probably slowed to its weakest pace since early 2017 in Q1 and, while we think that this should mark the bottom of the cycle, activity in most frontiers will remain sluggish over the next couple of years. … Growth in …
30th April 2019
We expect the yield of 10-year German government bonds to continue to drop this year, as investors factor in the prospect of even looser monetary policy in the euro-zone and demand for safe havens increases. But we think that the yield will rebound next …
25th April 2019
Despite the 35% surge in oil prices this year, some of the EM currencies traditionally regarded as “petro-currencies” have hardly risen. That is not all that surprising – the influence of oil prices on them is often overstated. Our view that most EM …
The rally in EM equities has continued over the past month, seemingly driven by the view that recent weakness in the global economy will not last, as policymakers in the US and China in particular engineer a recovery. But we are sceptical, and forecast …
17th April 2019
As earnings season kicks off today in the US, we think that investors remain too optimistic about the global outlook for earnings per share (EPS) growth, given the prospects for the world economy. That is the key reason why we forecast stock markets …
12th April 2019
We think that euro-zone stock markets will generally fall in the rest of 2019 as global growth remains weak and appetite for risk wanes. Equities in Germany and Italy will fare particularly poorly, in our view, as the downturn in global trade continues to …
Equities in the US have continued to rise in the past month, but the recent inversion of parts of the Treasury yield curve and weak economic data doesn’t bode well for the US stock market. We forecast that the S&P 500 will fall sharply over the rest of …
10th April 2019
Although the Fed’s dovish shift is likely to continue, we are sticking with our pessimistic view of the outlook for EM sovereign dollar bonds. That is because we expect credit spreads to rise sharply later this year, as hopes that the recent soft patch in …
We think that the best-performing countries in the MSCI EM Index so far this year will end up nearer the bottom of the class over the rest of 2019. That is because we expect the key factors driving the recent rally in global equities, namely optimism …
5th April 2019
