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The relationships between the dollar’s value against other “majors” and the gaps between expected interest rates in the US and those elsewhere appear to be re-establishing themselves. This has been good news for the greenback in recent months. But if the …
30th April 2018
Public debt positions across the emerging world have come under scrutiny recently and the risks appear to be concentrated in frontier markets. In aggregate, the debt-to-GDP ratio of frontier governments has risen by almost 15% of GDP over the past five …
In the last edition of The Capital Markets Analyst , we warned that the party in the financial markets might not last much longer. Since then, the US S&P 500 has fallen considerably from a record high. We think that it will remain under pressure, as the …
27th April 2018
The recent slumps in three widely-traded emerging market (EM) currencies – the Russian ruble, Turkish lira and Brazilian real – have all partly reversed since last week. But the bigger picture is that the rally in EM currencies more generally appears to …
20th April 2018
The 10-year US Treasury yield fell from a four-year high of almost 3.0% in late February to only around 2.7% in early April, leading to claims that it had now peaked in this cycle. Yet the yield has since rebounded a bit and we continue to forecast that …
16th April 2018
The FTSE 100 has edged higher over the past month, despite a 5% drop in the S&P 500 and an appreciation of sterling against the dollar. A rise in the exchange rate has typically seen the US index outperform its UK counterpart. So what explains the FTSE …
12th April 2018
Although we are not forecasting a recession in the US, we expect the economy there to slow significantly next year and think that this will contribute to a further downturn in the stock market. As a result, we anticipate that cyclical sectors of the S&P …
10th April 2018
Bitcoin’s correlation with equity prices has strengthened recently, but we think that this will be just temporary. We still think that Bitcoin is essentially worthless, meaning that it is likely to fare much worse than other assets in the coming months. … …
5th April 2018
Aside from equities in the US and China, those in Korea, Taiwan and South Africa appear particularly exposed to a further deterioration in Sino-American trade relations. And IT, consumer discretionary and consumer staples firms may be amongst the most …
4th April 2018
Equities have had a tough time over the past month, with the information technology (IT) sector in the US hit particularly hard since mid-March. The poor performance of the IT sector cannot be pinned on its valuation, which does not appear to be …
29th March 2018
After outperforming for much of the past year or so, the IT sector has led the falls in stock markets in the past couple of weeks. Is a sustained period of underperformance now likely? … Are the IT sector’s best days behind …
Although US Treasuries might have been expected to benefit from the recent slump in the stock market, the 10-year yield has not changed much. By contrast, the 10-year German Bund yield has fallen sharply. The divergence in these yields can only be partly …
26th March 2018
Most major Emerging Market currencies have fared well over the past month even as concerns of a global trade war have mounted, but a number of those in Frontier Markets have struggled. Indeed, only four out of the 32 frontier currencies that we cover have …
23rd March 2018
The spreads of emerging market (EM) sovereign dollar bonds have been edging up since their lows a couple of months ago, and we think that they have further to rise over the next two years. … Will EM credit spreads continue to …
22nd March 2018
Emerging market (EM) credit spreads have stabilised recently after a slight pick-up in early February on the back of the sell-off in global equity markets. But this may just be a temporary respite. In our view, spreads are likely to rise much further over …
15th March 2018
We think that the outlook for the US stock market is bleak. But unlike some who share this opinion, our pessimism is not rooted in a belief that the market is grossly overvalued and will inevitably collapse under its own weight. Rather it is rooted in our …
14th March 2018
The S&P 500 has tended to hold up well in the past when the Fed has tightened policy. But it has slid once the tightening has begun to take a toll on the economy. With this in mind, we don’t expect the index to ride high for much longer, despite …
12th March 2018
The price/forward earnings ratio of the MSCI Emerging Markets (EM) Index has fallen back a touch as the index has had a bumpy start to the year. We doubt that valuations will provide any support over the next couple of years, which feeds into our forecast …
7th March 2018
The reaction in currency markets to President Trump’s proposed tariffs on steel and aluminium suggests that investors are far more concerned that the duties represent the opening salvo of a trade war – with a potentially severe economic fallout – than …
6th March 2018
Brazil’s stock market has been the best-performing of any major economy this year, soaring by well over 10% despite the turmoil in global equities a few weeks ago. But we suspect that it will come back down to earth again before long as the drivers of the …
1st March 2018
The correction in global equities earlier this month coincided with a further rise in US Treasury yields, as higher inflation and the prospect of extra fiscal stimulus led investors to conclude that the Fed will step harder on the brakes. Our forecast …
28th February 2018
International bond markets have been inundated with debt issuance from frontier markets over the past couple of years and there’s no sign yet that appetite is waning. Since the start of this year alone Nigeria, Kenya and Argentina have all issued dollar …
The deal done in Congress at the beginning of this month will potentially result in even larger federal budget deficits than those seen during Ronald Reagan’s time as president. This is a key reason why we have decided to revise up our end-2019 forecast …
27th February 2018
The dollar’s weakness in the face of tighter Fed policy is reminiscent of the mid-2000s. At the time, interest rates and bond yields also moved in favour of the US, but its currency was dragged down by a growing “twin” deficit. Nonetheless, the dollar …
23rd February 2018
The recent sell-off in emerging market (EM) equities after the US stock market slumped reiterated how exposed they are to movements in developed market equities. Although EM equities have since recovered a bit, we think that further falls in the S&P 500 …
After a very strong run, EM bonds, equities and currencies have all faltered recently. Although they have since bounced back a bit, we think that their best days are now over. … Are the best days over for EM financial …
22nd February 2018
The US initially led the recovery in stock markets around the world from their falls of a few weeks ago. But the S&P 500 faltered a bit earlier this week, and we doubt that it will drive global equities higher again in the coming quarters. … Will the …
21st February 2018
We are abandoning our expectation that the dollar will have a last hurrah this year. We had previously expected it to stage a modest rebound against most other developed market currencies, as the contrast in the monetary policies of the Fed and other …
8th February 2018
EM credit spreads remain very tight by historical standards, despite picking up a bit in the wake of the chaos in global equity markets in the past few days. However, their current low levels do not appear justified by changes in EMs’ fundamentals, and we …
The severity of any further sell-off in global financial markets may be limited by the general health of the global economy and the scope for policymakers to respond if necessary. Nonetheless, the episode supports our repeated warnings that markets were …
6th February 2018
The stripped spread of the JP Morgan EMBI Global (which is comprised of sovereign dollar-denominated bonds) has continued to fall this year, and has rarely been lower in the post-financial crisis era. However, we are not convinced that the latest decline …
2nd February 2018
This month’s Bank of America Merrill Lynch’s Global Fund Manager Survey revealed that respondents were the most overweight equities relative to government bonds since August 2014. This is not surprising. After all, the global economy is in fine fettle and …
31st January 2018
The recent rally in oil prices has brightened the outlook for the majority of frontier oil exporters. In the Gulf, for example, higher oil prices and strong balance sheets have enabled the authorities to ease back on the harsh fiscal austerity of the past …
26th January 2018
The party in the markets has remained in full swing while the Fed has emptied its punchbowl slowly. This year, though, the US central bank is likely to drain it more quickly. And in some other major economies, monetary policy is also likely to be …
After some brief respite, US Treasuries have come under fire again. Indeed, the 10-year yield has now rebounded to its highest level since last spring. We expect its rise to continue this year, as the Fed tightens policy by more than investors are …
18th January 2018
Sentiment towards emerging market (EM) dollar bonds has remained remarkably positive recently. The spread of the JP Morgan EMBI Global is around its lowest since 2014. Issuance has surged. And flows into EM debt funds have hit record levels. However, we …
17th January 2018
South Korea’s announcement that it plans to ban cryptocurrency exchanges has coincided with rumours that China is planning to enforce a complete ban on Bitcoin mining. Could this new wave of regulatory pressure be the trigger that finally bursts the …
16th January 2018
Although the MSCI Emerging Markets (EM) Index of equities has hit the ground running again in 2018, we think that the rally will fizzle out before long. … Flying start to 2018 for EM equities not likely to …
12th January 2018
We expect the dollar to stage a modest rebound against most other developed market currencies this year, as the contrast in the monetary policies of the Fed and other major central banks generally proves to be a bit starker than investors are …
11th January 2018
We are forecasting that the Fed will be a bit more hawkish this year than the markets appear to be envisaging. In our view, the US economy, which is already close to full capacity, will start to slow in the second half of 2018 as monetary tightening takes …
10th January 2018
Frontier markets have enjoyed a recovery in 2017, with aggregate GDP growth set to reach close to 3%, up from a seven-year low of 2.3% in 2016. Frontiers in Latin America and Sub-Saharan Africa have exited recession, while growth has strengthened among …
20th December 2017
Shiller’s cyclically-adjusted price/earnings (CAPE) ratio for the S&P 500 has climbed to around 32. The last time it rose to such a high level was in the late 1990s, shortly before equity prices in the US plunged. Nonetheless, we don’t think that they …
18th December 2017
Although EM currencies are much stronger on average against the dollar now than they were at the start of 2017, most of them still do not appear significantly overvalued. … EM currencies do not appear …
14th December 2017
Despite the prospect of more monetary tightening in the US than investors are anticipating next year, we think that local factors will have more of a bearing on monetary policy in emerging markets (EMs) then. Reflecting this, we would not be surprised to …
13th December 2017
It is possible that there will be very little reaction in the Treasury market after the end of the FOMC meeting today. After all, the implied probability of a 25bp rate hike has been close to 100% for a while. But there may be a bigger impact if …
We think that investors are still underestimating the extent to which the Fed will tighten policy next year. As a result, we forecast that the dollar and Treasury yields will rise in 2018. We don’t think that this will take a big toll on US equities, …
11th December 2017
A couple of years ago, worries about China caused the last major correction in stock markets around the world. With the MSCI China Index plunging recently, could something similar be around the corner? Possibly. But because the latest drop is not …
7th December 2017
Volatility in the US Treasury market remains very low by the standards of the past. Although we expect it to rise next year as the Fed catches investors a bit off guard, we doubt that it will surge. … Will volatility in the Treasury market pick up in …
6th December 2017
For most of this year, the dollar’s value against other “majors” has tracked the gap between 10-year government bond yields in the US and the countries where these other currencies are issued. However, this relationship has broken down over the past …
29th November 2017
Even though emerging market (EM) credit spreads are generally very low by past standards, we do not think that a surge is around the corner. … Low EM credit spreads may last a while …
28th November 2017