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We think developed market (DM) monetary policy may be a threat to emerging market (EM) assets for some time yet . Hawkish monetary policy has arguably been the biggest headwind for global financial markets this year. Rapid upward revisions to …
31st August 2022
The rebound in the prices of “risky” assets has stalled recently and we expect it to go into reverse over the rest of this year as economic growth in many major DMs disappoints and appetite for risk deteriorates. Risky assets generally continued to …
26th August 2022
We expect the spread between the yields of 10-year German and Swiss government bonds to widen further over the remainder of this year. The spread between 10-year German and Swiss government bond yields has widened sharply this year , with the former …
25th August 2022
We expect the PBOC to follow its recent policy rate cuts with further easing over the months ahead. This informs our decision to lower our forecasts for China’s 10-year government bond yield. But we don’t think further rate cuts, of the scale we …
24th August 2022
Despite its recent resurgence, we still expect the S&P 500 to fall over the remainder of this year. The S&P 500 has continued to add to its gains this month . It is now more than 15% above its mid-June trough, and has unwound more than half of the losses …
19th August 2022
Brazil’s stock market has fared better than most this year, but we forecast it to fall ~15% over the rest of 2022. And while we expect it to rebound over the following couple of years, we think falling commodity prices and mounting fiscal risks will limit …
12th August 2022
The anticipation of quick reversals of central bank rate hikes has probably supported equity markets of late, but we suspect investors have become overly optimistic and still think equity prices will end this year, in general, below their current levels. …
We held a Drop In yesterday outlining our latest forecasts for global financial markets. This Update answers some questions that we received during that Drop In but didn’t have time to address. What would have to go right for bond and equity markets to be …
10th August 2022
While China-Taiwan tensions haven’t yet caused ructions in global financial markets, any escalation that threatened to disrupt trade and/or financial flows almost certainly would. This Update explores the potential ramifications of such an event across …
5th August 2022
We doubt the recent rallies in global bond and equity markets will be sustained over the remainder of the year. While we no longer think the 10-year US Treasury yield will exceed its June peak, we still expect it to rise as the Fed delivers a bit more …
3rd August 2022
The spreads of sovereign dollar bonds over US Treasuries are in distressed territory in almost a third of EMs covered in the JP Morgan EMBI Index, with the majority of those being frontier markets. In this note, we answer five key questions on default …
We continue to expect the yields of 10-year emerging market (EM) local currency (LC) sovereign bonds to rise over the rest of 2022. But we anticipate smaller rises than we did previously, given our downward revisions to our Treasury yield forecast, and …
1st August 2022
We still expect a higher 10-year Treasury yield, lower S&P 500 and stronger US dollar over the remainder of the year, but have pared back our forecasts for the rise in yields and fall in equities. In particular, we now suspect the 10-year yield is …
29th July 2022
Even though equity and bond valuations in frontier markets and a few smaller emerging markets (EMs) have fallen sharply, we think the risk of contagion is low and that most EMs will hold up relatively well. EM financial assets have come under serious …
21st July 2022
While the valuation of the S&P 500 has fallen a long way, we don’t expect it to rebound any time soon; this is one reason we expect the index to continue to struggle over at least the remainder of this year. The backdrop for US corporate earnings looks …
While a lot of attention has focussed naturally on the potential implications for the JGB market of a further tweaking of the Bank of Japan’s Yield Curve Control (YCC), the country’s huge investment in markets overseas means that they too might …
15th July 2022
The valuations of euro-zone assets are now very low relative to those in the US, but we don’t think that’s a reason to expect the former to outperform the latter any time soon. The valuation of euro-zone assets has continued to fall over the past few …
We think “quantitative tightening” (QT) may put upward pressure on long-dated Treasury yields over the coming years. But we think that changes in investors’ expectations for the fed funds rate will remain a far more important driver of these yields and …
14th July 2022
While the largest increases in corporate spreads in the US and the euro-zone may now be behind us, we suspect that a challenging economic backdrop will keep spreads elevated in both places for some time . The option-adjusted spreads (OAS) of ICE BofA ML’s …
8th July 2022
We suspect that the latest political turmoil in the UK adds to the reasons to expect a renewed rise in the 10-year Gilt yield, weakness in the pound, and continued trouble for the FTSE 100. The market reaction to the resignation of Boris Johnson as Prime …
7th July 2022
Despite a rebound over the past day or so, 10-year developed market (DM) government bond yields have fallen substantially in recent weeks. This has coincided with investors lowering their expectations for peak policy rates and anticipating subsequent rate …
We expect the yields of emerging market (EM) local-currency (LC) and dollar sovereign bonds to rise further and EM equities to lose more ground as “risk-free” rates continue to climb and global economic growth disappoints . EM bonds and equities have come …
30th June 2022
We think developed market (DM) government bond yields will rise further while equity and corporate bond prices fall further, as central banks press ahead with tightening and the global economy slows. The past few weeks have brought hawkish surprises from …
29th June 2022
We held a Drop-In on Wednesday to discuss what the evolving outlook for monetary policy and global growth means for our markets forecasts. This Update recaps the key questions we addressed in the Drop-In and answers several of the questions that we …
24th June 2022
We now think that the yields of 10-year developed market (DM) government bonds will peak earlier and, in some cases, at higher levels than we previously expected. That reflects a view that tightening cycles in many DMs will be more front-loaded and …
22nd June 2022
We think that stock markets in the emerging world will continue to struggle alongside their developed market (DM) peers over the next eighteen months or so, for four main reasons. The MSCI Emerging Markets (EM) Index has also struggled during the renewed …
20th June 2022
We think the sell-offs in US government bonds and equities have further to run, and have revised our forecasts for 10-year Treasuries and the S&P 500 accordingly. US bonds and stocks have been volatile this week amid a raft of central bank decisions, …
17th June 2022
We think the Bank of Japan (BoJ) will widen the tolerance band around its 10-year Japanese Government Bond (JGB) yield target, and that the yield will consequently rise by around 25bp. But there is a clear risk of a larger and more disorderly sell-off …
15th June 2022
The prospect of tighter Fed policy than we had previously envisaged (see here ) presents upside risks to our forecasts for the 10-year Treasury yield as well as downside risks to our forecasts for the S&P 500. The moves in financial markets have been …
14th June 2022
The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the …
13th June 2022
We are raising our forecasts for euro-zone 10-year government bond yields and “peripheral” spreads to reflect the ECB’s further hawkish shift as well as its apparent unwillingness to commit to a strong backstop for peripheral bond markets . The sell-off …
10th June 2022
While the yields of emerging market (EM) local-currency (LC) and dollar-denominated sovereign bonds have dropped back in recent weeks, we expect them to resume their rise before long . After trending up for most of this year, the yields of 10-year LC …
31st May 2022
We don’t expect long-term inflation compensation to continue to tumble, and think long-term government bond yields will bounce back before long . After increasing significantly over the past year or so, long-term inflation compensation has fallen quite …
26th May 2022
We think “risky” assets will continue to struggle over the next year or so, even if a recession is avoided in most major developed markets (DMs) . Risky assets, which had already come under significant pressure earlier this year, have continued to …
24th May 2022
So far, the sell-off across bond and equity markets this year has not triggered major signs of systemic risk. If that were to change, central banks would probably have to step in to prevent a destabilising cycle of panic selling and money market distress …
20th May 2022
Despite its struggles yesterday, we think the S&P 500 may have some way further to fall as the economy slows and more companies struggle to meet optimistic earnings expectations. Yesterday’s fall in the S&P 500 clearly stands out from what has already …
19th May 2022
The current struggles of the S&P 500 don’t have much in common with most previous “bear markets”, but we still think one is likely as the Fed presses ahead with monetary tightening . Although it has recovered a bit lately, at the time of writing the S&P …
18th May 2022
The S&P 500 might continue to struggle if, as we expect, slowing economic growth and rising labour costs causes corporate profits to grow by less than most anticipate. While below-expectation Q1 earnings reports from a few high-profile US companies have …
13th May 2022
While our central forecast remains that euro-zone “peripheral” spreads will rise only a bit between now and the end of 2022, we think that the risk of a significant increase in spreads has risen . Notwithstanding a tick-up today, the yield spreads of …
There has been plenty of doom and gloom surrounding the outlook for frontier economies over recent months, particularly Sri Lanka and Tunisia. But there are some places where we hold more upbeat views. Frontier economies in the Gulf will benefit from high …
12th May 2022
We expect concerns about global economic growth and monetary policy tightening to push up the spreads of developed market (DM) corporate bonds a bit further over the coming year . After holding broadly steady at low levels for most of last year, the …
6th May 2022
With more monetary tightening to come from the Fed, we think the rise in Treasury yields has further to run and that equities will continue to struggle. At face value, this week’s Fed announcements were quite hawkish : the central bank hiked its target …
5th May 2022
We think the rises in global government bond yields – and falls in equity prices – have not run their course yet. Yields have typically peaked only shortly before the ends of central bank tightening cycles and we doubt this one will be different. We …
29th April 2022
This Update presents our revised forecasts for the yields of developed market (DM) long-term government bonds, in light of recent market moves and changes to our expectations for monetary policy. We argued last month that the increase in DM government …
22nd April 2022
We don’t expect ongoing tightening by the Federal Reserve will see the valuations of emerging market (EM) equities or bonds plunge, even if they are unlikely to rebound much either. Sharp rises in bond yields in developed markets this year – amid …
21st April 2022
An analysis of the behaviour of the yield of 10-year US Treasuries during the eight major Fed tightening cycles since the 1970s suggests to us that the current sell-off in long-dated US government bonds may have further to run if the Fed hikes rates by a …
14th April 2022
We suspect the sectors of the equity market where valuations are the lowest will continue to weather the storm of rising bond yields a bit better than others. We highlighted in our previous DM Valuations Monitor how rising bond yields were taking a toll …
12th April 2022
Earnings expectations for listed euro-zone companies look, as a whole, a bit optimistic to us given the economic impact of the Russia-Ukraine war and Western sanctions. This feeds into our view that the region’s benchmark equity indices will, in general, …
8th April 2022
While the prospect of a euro-zone break-up looks more remote than during the 2017 French presidential campaign, the possibility of Marine Le Pen taking power is still a major risk to euro-zone financial markets. As we discussed here and here , the recent …
7th April 2022
This tightening cycle looks set to be much more synchronised across developed market economies than the last one, which we think creates more scope for rises in bond yields across countries but could limit any further flattening of the US yield curve. …
5th April 2022