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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
While we suspect the recent recovery in the MSCI China Index may have further to run, we don’t think the stage is set for a big rally either . After falling sharply at the beginning of the year, China’s stock market appears to have turned a corner in …
1st April 2022
As a result of the Russia-Ukraine war and the Fed’s hawkish pivot, we have tweaked our forecasts for most major emerging market (EM) assets. The big picture, though, is that we still think EM equities will generally make small gains over the remainder of …
30th March 2022
While we think that the war in Ukraine and Fed tightening will weigh on US corporate earnings, we still expect those earnings to grow in the next two years or so. This underpins our view that US equities will make some further small gains over that time . …
28th March 2022
The reinvestment of oil revenues into US markets probably helped avert a rout in Treasuries during the mid-2000s hiking cycle, but even with oil prices on the rise again we don’t expect so-called “petrodollars” to halt the current slide in Treasuries. …
24th March 2022
The war in Ukraine, as well as the hawkish tone adopted by some developed market (DM) central banks, have led us to revise up our end-22 and end-23 forecasts for government bond yields in some DMs and to lower our projections for DM equities generally . …
23rd March 2022
We think the war in Ukraine and a more hawkish Fed will cause the yield of 10-year US Treasuries and the US dollar generally to end 2022 and 2023 a bit higher than we had previously anticipated. We now also expect DM equities to be a bit lower by the end …
18th March 2022
We think the Fed’s tightening cycle will lead to the 10-year Treasury yield ending this year and next a bit higher than we had previously anticipated, although we still expect it to rise only gradually. The Fed has started its tightening cycle in a …
17th March 2022
Some of the effects of the war on markets have begun to unwind in recent days, but we think a few of the changes it has brought about will last even if the mood in markets continues to improve. While the situation remains volatile, at the time of writing …
16th March 2022
Although a gap between euro-zone corporate and peripheral sovereign spreads opened up after the start of the Russia-Ukraine war, it has begun to close recently and we think that it will shrink further . The spreads between the yields of long-dated …
11th March 2022
The war in Ukraine and sanctions on Russian oil trade have increased oil prices by as much as 40% so far this year, but we don’t think higher energy costs will derail the US stock market as they might have at times in the past. Oil prices have surged in …
The US stock market has so far held up fairly well despite the Russia-Ukraine war. We think it will probably manage to make small gains over the rest of the year, although there are clear downside risks. The Russia-Ukraine war has sent tremors through …
9th March 2022
This Update discusses three ways in which the outbreak of war in Ukraine has called into question our asset allocation views. While the situation is fluid and the outlook especially uncertain, it also provides our initial thoughts on how things might play …
4th March 2022
The onset of other major conflicts and military-related crises have often seen global equity indices tumble, while moves in developed market government bond yields have depended on how energy prices and central banks responded. This suggests to us that …
While Russia’s financial markets have unravelled since the country’s invasion of Ukraine, global markets have so far held up relatively well. But the mood seems to have turned a bit in recent days, and there are now some early signs of financial stress …
3rd March 2022
While the war in Ukraine may well push down the yields of long-dated developed market (DM) government bonds further in the near term, we think that a sustained rally in bonds is unlikely unless the war causes a sharp fall in output in major DMs, which, …
2nd March 2022
New sanctions on Russia have led to a sharp plunge in the ruble, and an effective freeze of most of the country’s financial markets. We think that the outlook now depends mainly on the extent to which this marks the start of an enduring break in Russia’s …
28th February 2022
Amid all the volatility in global markets during the Russia-Ukraine conflict so far, we think there are several key lessons we can draw from the relative performance of bonds, equities and currencies that will help to inform how they might evolve from …
25th February 2022
While the mood seems to have improved a little at the time of writing, the S&P 500 closed yesterday more than 10% lower than its recent peak at the start of the year, satisfying the criteria for a stock market correction for the first time since 2020. The …
23rd February 2022
The threat of sanctions has weighed on Russia’s stock market recently, but even if tensions abated we wouldn’t expect it to make big gains over the next couple of years. Russia’s equities have been volatile lately, but the big picture is that the tensions …
18th February 2022
With tensions between Russia and Ukraine continuing, the risk of a conflict with far-reaching economic consequences remains uncomfortably high. This Update considers what the impact on global financial markets has been so far, and the potential …
We think that the gap between the yields of 10-year German and Swiss government bonds will re-emerge over the next couple of years as the ECB tightens policy more quickly than the SNB. Prior to the pandemic, there was a spread between the yield of the …
17th February 2022
Even if tensions between Russia and Ukraine abated, we wouldn’t expect risky assets to gain all that much over the rest of this year and next, mainly because we think ongoing monetary tightening would continue to keep a lid on any rally. Risky assets have …
16th February 2022
We think that yields of 10-year emerging market (EM) local-currency (LC) government bonds may, in general, increase by more in Asia than in other regions by end-2023, in contrast with the pattern over the past year. The main exception is in China, where …
11th February 2022
We continue to expect 10-year government bond yields across developed markets (DMs) to rise over the next few years. But given some upward revisions to our policy rate forecasts for the euro-zone, Australia and the UK we now think yields there will be …
We think upcoming “quantitative tightening” by the Fed will contribute to further increases in the yields of long-dated Treasuries this year and next. Investors have ramped up their expectations for Fed rate hikes lately, pushing Treasury yields to …
10th February 2022
We doubt the S&P 500 will get much of a boost from upward revisions to earnings forecasts between now and the end of 2022, which is one reason why we expect the index to make only small gains this year. What’s more, notwithstanding their recent struggles, …
4th February 2022
Sovereign dollar bond spreads have widened significantly in several Frontiers over the past couple of months, driven largely by country-specific factors. There are reasons to be hopeful that outright sovereign defaults can be avoided in Ukraine and Ghana, …
3rd February 2022
Emerging market (EM) equities’ relatively low valuations may continue to hold them in better stead than equities in the US, but we think they will do less well compared to other developed market (DM) equities. One striking feature of January’s falls in …
1st February 2022
Although government bond yields have already risen sharply this year, we think that they will continue to increase as central banks press ahead with monetary tightening this year and next. Higher yields will, in our view, weigh further on developed market …
28th January 2022
The sell-off in Russia’s financial markets in response to the reassessment of the likelihood of conflict with Ukraine has pushed up the risk premium on Russian assets to a similar level to that which followed the annexation of Crimea in 2014. There is …
27th January 2022
Even though the valuations of technology stocks have, in general, already fallen sharply in recent weeks, we suspect they may decline further over the next couple of years. This is one reason why we expect the sectors in which they are heavily represented …
25th January 2022
Our baseline forecast envisages that US corporate bond spreads rise only slightly as the Fed raises interest rates over the next couple of years. But we think the risks to this forecast are skewed to higher spreads. We think that the Fed will hike …
21st January 2022
The deadlocked end to talks between Russia, the US and NATO and subsequent hawkish noises from Russian officials have caused a risk premium to emerge on Russian asset prices and will keep the prospect of tighter Western sanctions on the table. The …
14th January 2022
Even though we doubt that China’s equities will fare anywhere near as badly over the next couple of years as they did in 2021, we do not expect them to make strong gains from here either. This time last year we outlined our view that China’s equities …
We do not think the returns from many financial assets will be as good in 2022 as they were in 2021. For a start, we envisage a sell-off in government bonds in most places, reflecting the outlook for monetary policy. And, in general, we foresee an …
13th January 2022
We continue to expect monetary tightening to push up 10-year government bond yields across developed markets (DMs) but we now forecast them to reach a higher level than we had previously anticipated, especially in the US, Germany and the UK . Last year, …
12th January 2022
While we don’t think the stock market’s falls this week mark the start of a sustained rout, we do expect Fed tightening to curb the upside for mid- and large-cap US equities over the next couple of years. And tighter monetary policy might also weigh a bit …
7th January 2022
While many central banks have continued to tighten monetary policy over the past month, the People’s Bank of China (PBOC) has gone in the opposite direction. We think the easing cycle in China has further to run, and that this will contribute to a further …
22nd December 2021
While we have raised our end-22 and end-23 forecasts for the S&P 500, we still expect gains in the index to be smaller over the next two years than they have been in 2021 and on average over the past decade . After rising sharply in October, the S&P 500 …
21st December 2021
We are revising down our end-2022 and end-2023 forecasts for the 10-year US Treasury yield by 25bp each, to 2.00% and 2.25%, respectively. This compares to its current level of ~1.4%. Admittedly, we now project that the Fed will raise its policy rate far …
17th December 2021
In our view, analysts’ expectations for earnings across the emerging world over the next couple of years generally look a bit optimistic. And, since we don’t expect a major increase in valuations, we think that emerging market (EM) equities will make only …
14th December 2021
Even though headline US CPI inflation may now have peaked, we still think long-term inflation compensation could rise a little over the next couple of years. Data released today showed that US headline CPI inflation hit in November its highest level since …
10th December 2021
We now expect the Treasury yield curve to flatten further over the next couple of years but think that, in contrast with recent developments, this will happen alongside rising long-term yields. The US Treasury yield curve has flattened sharply over the …
9th December 2021
This Update takes stock of the moves in developed market (DM) asset markets in response to the “Omicron” variant, and provides initial thoughts on how we think things might progress if some of the fears about it are realised. Speculation that Omicron …
3rd December 2021
US inflation hit its highest level since the 1990s in October and has now reached a rate that, historically, has coincided with very poor stock market returns. Notwithstanding the uncertainty around the impact of the “Omicron” variant of the coronavirus, …
1st December 2021
Spillovers to other emerging markets (EMs) from Turkey’s ongoing currency crisis have been limited so far and we think this will remain the case even if Turkey’s financial markets remain under pressure . Turkey’s financial markets generally have taken a …
24th November 2021
