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Sovereign balance sheets in most of the large emerging economies are in reasonable shape, but those in a few of the smaller Frontier Market economies are very fragile. And investors’ concerns have ratcheted up in recent weeks. The political importance …
26th September 2018
The Japanese yen is the only “major” currency to have fared worse than the US dollar since the middle of August. Nonetheless, we think that its fortunes will improve against the greenback. Our forecast is that the exchange rate will drop back from around …
Even though emerging market (EM) assets generally weakened again over the past month, and some have now fallen a very long way, we still forecast that there is considerably more pain to come. … Trouble for EM assets probably far from …
20th September 2018
Judging by what has happened in recent months, President Trump’s attitude to global trade could remain a more important driver of the US dollar than the prospects for monetary policy in the US and elsewhere. With this in mind, we might need to revise our …
19th September 2018
The fact that emerging market (EM) equities have dropped a long way recently does not mean that they cannot fall much further, or that they are likely to perform much better than their US peers in the future. … Will EM equities fall much …
18th September 2018
Ten years after the collapse of Lehman Brothers, there are concerns that the financial markets will bring the global economy to its knees again. We do not think, however, that they will be a major cause of the next recession, despite claims that the …
14th September 2018
Although they have recovered a touch in the past couple of days, emerging market (EM) currencies have generally slumped against the dollar since mid-April. These falls shed light on which are most vulnerable in the next two years given the outlook for US …
13th September 2018
Worries about protectionism have clearly weighed on equity markets in much of the world recently, and this will probably remain the case. What’s more, we suspect that protectionism concerns will start to take a toll on the US stock market, which has …
6th September 2018
Large-cap equities have generally continued to make headway in the US since the end of July, despite the fact that they have fallen in much of the rest of the developed world. Historically, equities in the US and other advanced economies have rarely moved …
4th September 2018
Frontier financial markets have endured a torrid 2018, but this hasn’t been accompanied by a deterioration in the hard activity data. Admittedly, growth in the largest frontier economy, Nigeria, slowed in Q2. But that was due to weakness in the oil …
29th August 2018
Despite rising since January, emerging market (EM) corporate credit spreads remain very tight by past standards and relative to those of their counterparts elsewhere in the world. We think that this reflects cyclical, not structural forces, and expect …
The S&P 500 has not fallen by more than 20% since it began to climb after the last recession. As a result, the index has remained in a “bull market” that is about to become the longest ever, surpassing its winning streak before the dot com bubble burst in …
22nd August 2018
We suspect that, due to technical reasons, the ECB will increase its purchases of Italian government bonds in October. This might help to prevent yields from shooting up if Italy’s Government submits a very expansionary Budget to the European Commission …
21st August 2018
The main factor weighing on EM assets recently has been worries about contagion from the crisis in Turkey. But even if these fears subside, there are plenty of other reasons to be pessimistic about the outlook. … Turkey’s crisis just one of many threats …
17th August 2018
There is a widely-held view that the prices of many financial assets are bound to come crashing down sooner or later, because their valuations have risen far above the long-run averages to which they must inevitably revert. We think that this is bunkum, …
15th August 2018
Emerging market (EM) currencies have weakened against the dollar again today on worries about Turkey. While the pressure from this source might not last long, we think that the outlook is fairly poor regardless. … What the crisis in Turkey means for EM …
13th August 2018
Aside from a brief drop in July, emerging market (EM) credit spreads have generally been rising in recent months and are well above their January troughs. Nonetheless, corporate credit spreads in particular still appear very low by past standards. We …
8th August 2018
While we still assume that the UK and the EU will reach some sort of agreement over Brexit before the deadline next spring, there is clearly a significant possibility of no deal. In this scenario, we would expect sterling to fall a lot further, but UK …
7th August 2018
The Italian Treasury’s latest debt buyback has helped to contain a rise in yields related to concerns over Budget plans. But such operations can offer only temporary respite. We see the Italian 10-year yield rising to 3.5% by year-end, even assuming that …
6th August 2018
Equities in China and other parts of Emerging Asia have slumped since mid-June. But unusually, those in Latin America have surged at the same time. There are already signs that the rally in Latin America equities is faltering, though, and we expect them …
3rd August 2018
Despite the resilience of the S&P 500 recently, US assets have not been altogether immune to trade tensions. And we think that they will come under a lot more pressure if, as seems increasingly likely, President Trump carries out his threat to impose …
25th July 2018
Market concerns over fragile balance sheets have forced policymakers in a number of frontier economies to take action over the past month. Strains in the balance of payments prompted the authorities in Pakistan and Tunisia to allow their currencies to …
The very low level of long-term bond yields across the euro-zone suggests that there is no urgent need for the ECB to copy the US Fed’s “Operation Twist” by replacing short-dated securities with longer-dated ones. But this is a tool that it could deploy …
Worries about a global trade war have already weighed on the prices of many risky assets, particularly those in Asia. And there is a growing risk that the US implements even more protectionist measures than it has threatened so far. Even if this does not …
20th July 2018
We argued at the start of this year that the good times for emerging market (EM) assets were likely to come to an end after a stellar 2017. As it happens, in many cases they have already fallen further than we had thought they would over the year as a …
11th July 2018
The betting markets are assigning a greater probability to an early general election in the UK in the wake of high-profile resignations in the Conservative Party since the Cabinet met at Chequers on Friday. Nonetheless, this hasn’t altered the view in the …
10th July 2018
Some argue that the stock market is less vulnerable in the euro-zone than in the US because its valuation is much lower. But the gap in their valuations is arguably negligible. … Euro-zone and US equity valuation: where’s the …
5th July 2018
Emerging market (EM) currencies have mostly recovered a little ground against the dollar today. But the bigger picture is that they have generally been weakening for some time now, and in our view further falls are likely in most cases even if fears of a …
3rd July 2018
Emerging market dollar bonds have struggled over the past month, but those in frontier markets have typically fared much worse. Of course, risky assets in general have sold off amid fears of a global trade war. Among frontiers, spreads have ballooned in …
27th June 2018
Trade tensions have not caused any dramatic moves yet, but there are at least four clear signs in the equity markets of investors becoming more nervous about the possibility of a global trade war. … Four signs equity investors are worrying about …
Emerging market (EM) equities have been caught up in the more general sell-off in EM assets in the past month, with the MSCI EM Index dropping by about 3% in local currency terms. Even if recent headwinds abate, there are other reasons to think that the …
20th June 2018
Benchmark equity indices in Italy and Spain have outperformed those elsewhere in Europe in the past days. But while the reasons for this may continue, they remain vulnerable to political risks. … Will Italian and Spanish equities remain safe …
The recent widespread weakness of emerging market (EM) currencies has been accompanied by a rise in local currency bond yields in almost all EMs. But even if currencies generally continue to slide, as we are anticipating, we still think that yields will …
15th June 2018
The movements in dollar/euro over the past few days are a reminder that Fed and ECB policy are still important drivers of the exchange rate. Our view remains that their policies will provide ongoing support for the US currency in the rest of 2018, before …
Surging corporate profits in Japan since the beginning of last year have not generated much excitement among investors. This is probably because most of it has come from sectors that rely heavily on global growth, and it is therefore not seen as …
13th June 2018
The information technology (IT) sector of the S&P 500 has been on another tear since late April. Although its valuation is still not stretched and its weighting in the index will probably rise even further over time, we continue to think that it is …
7th June 2018
Although investors have become less concerned about the political situation in Italy, we do not expect a significant rebound in Italian equities, which have already come under pressure again this week. … Italian equities unlikely to stage a big …
6th June 2018
Frontier financial markets have been among the main victims of the recent EM sell-off. The Argentine peso has been by far the worst performing frontier currency, falling by around 17% against the dollar. The central bank was forced to hike interest rates …
31st May 2018
We have lowered our end-year forecasts for the yields of 10-year government bonds in the US, Germany and UK, all of which have fallen sharply during the past fortnight as Italy’s political crisis has grown. We have also tempered our projections for …
30th May 2018
The dollar has continued to recover over the past month. This has coincided with a further increase in the gap between 10-year government bond yields in the US and elsewhere. Although this gap began to increase in September 2017, it wasn’t accompanied by …
24th May 2018
Although the yields of emerging market dollar-denominated corporate bonds have already risen substantially since the start of February, we expect them to climb much further. … Corporate bond yields likely to rise a lot …
22nd May 2018
We think that interest rates in the US and elsewhere will diverge by more than investors are anticipating over the next year or so, but then converge in a way that they are not envisaging. We expect this contrast in monetary policy to have important …
21st May 2018
Emerging market (EM) currencies have fallen sharply on average against the dollar since the middle of last month, and we forecast that they will weaken further between now and the end of next year. … Will the slide in EM currencies …
16th May 2018
Although the 10-year US Treasury yield has already risen substantially so far this year, we continue to forecast that it will end 2018 significantly higher than it is now before dropping back in 2019. … Treasuries are probably set for more pain before …
The pressure on emerging market (EM) assets that began in late January may have eased slightly in the past day or so. But our forecasts are for further weakness between now and the end of next year, as the two main factors responsible for the slide – …
11th May 2018
Large-cap equities in Europe and Japan have fared far better than those in the US since mid-April. But this seems to have been entirely due to a resurgence of the dollar, which we expect to more than reverse. … European and Japanese equities likely to hit …
8th May 2018
Emerging market (EM) currencies have remained under pressure this week, and we expect most to soften further against the dollar. But, with the exceptions of the Turkish lira and Argentine peso, the fundamentals do not point to very large falls. … Further …
3rd May 2018
More than half of the 80bp rise in the 10-year Treasury yield since last September, to around 3.0% now, can be attributed to inflation compensation. The rest has been guided by a belief that the Fed will tighten policy more aggressively in real terms. …
2nd May 2018
Emerging market (EM) currencies have continued to slip against the dollar, probably in large part due to rising bond yields in the US and a global increase in risk aversion. We suspect that US Treasury yields will climb further this year, and that risk …
We think that after the ECB has ended its asset purchases, bond yields will generally rise only slowly. The biggest increases are likely to come in the periphery, with Italy most at risk of a sharp sell-off. … How will the end of ECB QE affect bond …