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The full report is available to download from the button at the top right to Global Economics, Global Markets, Asset Allocation and The Long Run subscribers, as well as to CE Advance clients. If this is outside of your current subscription and you would …
17th October 2023
Chapter 4: Financial market implications …
Chapter 3: Where will inflation (and nominal rates) settle? …
Chapter 2: How will the savings/investment balance affect r*? …
Chapter 1: Will stronger potential growth boost r*? …
Introduction and framework …
r* and the end of the ultra-low rates era: executive summary …
Market jitters around the war between Hamas and Israel appear to have stabilised today. But given that the uncertainty on that front is unlikely to fade entirely any time soon, it is worth taking stock of the warning signs evident in commodity markets. …
16th October 2023
We don’t expect a rise in earnings expectations to give the S&P 500 much of a near-term boost, but think the picture is more positive further ahead. Although US earnings season is getting under way, corporate profits probably haven’t always been front of …
13th October 2023
Large-capitalisation (large-cap) stocks in emerging markets (EMs) have markedly underperformed their smaller counterparts this year, sharply contrasting with the relative performance of large- and small-cap stocks in developed markets (DMs). But our view …
We still think the Fed and investors are too pessimistic about inflation in the US returning to target. We expect a continued fall in both core and headline inflation to push down US Treasury yields over at least the next year or so. CPI data out of the …
12th October 2023
We think euro-zone equities’ recent run of underperformance relative to those in the US will extend over the next couple of years, as bond yields fall back and enthusiasm around “AI” continues to grow. With the bond market sell-off seemingly having abated …
The fall in Treasury yields since last Friday has pushed corporate bond yields down and equities up in the US. But while we think that Treasuries will keep rallying, we suspect that corporate bonds and equities will fare quite poorly in the near term. …
11th October 2023
We expect a continued paring back of US interest rate expectations to keep pushing long-dated Treasury yields down in coming quarters. But higher term premia may limit those falls in yields. Moves in long-dated Treasury yields have been mixed so far …
10th October 2023
The latest war between Hamas and Israel comes at a tricky juncture for global markets, and could easily increase volatility further. At this point, we think there are three key considerations around the potential market fallout. First, major financial …
9th October 2023
The US stock market has rallied so far today and is on track to bring to an end a spell of weekly losses. Although we think that the proximate cause of this recent weakness – rising bond yields – has largely run its course, we don’t expect the fortunes of …
6th October 2023
The government bond sell-off over the past three months raises uncomfortable questions around the risks of financial instability and the outlook for fiscal policy. This note takes stock of what has driven the rise in long-term sovereign bond yields and …
A laundry list of explanations has been provided for the surge in the term premia of Treasuries since mid-year, which has accounted for more than ~100bp rise in the 10-year yield based on the ACM model estimate. (See Chart 1.) One explanation that doesn’t …
5th October 2023
Equities in the Textiles, Apparel & Luxury Goods industry have fared quite poorly recently, which has weighed on the luxury-heavy French stock market. But while they might underperform a bit more in the near-term, we suspect that they will recover next …
We think the yields of 10-year government bonds in Australia, New Zealand and Canada will diverge from the yield of 10-year US Treasuries – which they have tracked very closely this year – over time, with bonds in all three countries outperforming those …
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
While government bond yields have stabilised today, their sharp rises over recent weeks are increasingly concerning. We think there are four key observations to make at this point. First, long-term yields have been rising steadily since mid-July, but have …
We think that the yields of Australian long-term sovereign bonds will fall by a bit less than those of US Treasuries over the next couple of years, even though they’ve moved in lockstep lately. But the picture looks a bit different, to us, in other …
3rd October 2023
The higher-for-longer narrative took hold over the third quarter, pushing bonds and equities down in most markets. But we doubt that this narrative will last. We expect bond markets to rebound as inflation falls more quickly than widely anticipated. And …
2nd October 2023
While concerns about euro-zone public finances put upward pressure on bond yields there, the outlook for inflation will probably remain the focus for investors . In our view, that means bond yields in the euro-zone will fall by end-2024, but by much less …
29th September 2023
Both “safe” and “risky” assets have struggled during Q3 so far, as “risk-free” yields have risen. We expect the fortunes of safe assets to improve over the rest of this year, largely informed by our view that investors are underestimating how quickly …
28th September 2023
We think the “tech”-heavy sectors of the stock market, which have largely shrugged off the rout in Treasuries, will generally continue to do well. The Treasury market sell-off has continued in earnest this week. The 10-year Treasury and TIPS yields have …
10Y Treasuries have underperformed 2Y Treasuries over recent months, bucking the usual pattern after the final Fed hike (if, as we think, the final hike was in July). But we think the stage is now set for 10Y Treasuries to outperform over the next year or …
27th September 2023
We think that investors’ enthusiasm for artificial intelligence (AI) will grow again next year and inflate a bubble in stock markets. This is just one of the many consequences that AI will have on the economy, in our view, as we discuss at length in our …
26th September 2023
Another set of downbeat business surveys out of the euro-zone and an increasingly cautious tone from ECB officials have put the EUR/USD rate under renewed pressure. But more broadly market participants do not appear particularly downbeat on the prospects …
25th September 2023
With the Bank of Japan offering little new at its policy meeting earlier today and US Treasury yields surging higher in the wake of the FOMC’s hawkish message earlier in the week, pressure on the yen has ratcheted up further. Unless US policy changes …
22nd September 2023
We now expect the Bank of Japan to hike its policy rate – for the first time in sixteen years – next January. While we think global markets are generally braced for such an event, there’s a clear risk nonetheless that it puts pressure on long-term bonds …
We think that both the Fed and the BoE are finished hiking interest rates and will cut by more than investors are discounting over the next couple of years. We also expect the US and UK economies to tip into mild recessions before long. These similarities …
21st September 2023
Despite the hawkish rhetoric from central bankers on both sides of the Atlantic, we still expect most long-dated government bond yields in developed markets (DM) to fall over the next couple of years. After a surprisingly hawkish message from the FOMC …
We remain of the view that investors are overestimating how high the federal funds rate will be over the next couple of years, and that Treasury yields will fall as a result. A lot of discussion around the upcoming FOMC decision has focused on the path …
20th September 2023
The recent rally in oil prices has had only a limited impact on bond and equity markets so far. And we doubt that this will change anytime soon, given our view that the rally will not last much longer and that other factors will continue to play a bigger …
19th September 2023
The latest increase in the 10-year TIPS yield, to a post-Global - Financial-Crisis high of ~2% at one point last week, has barely caused a ripple in the markets. More generally, the influence of “safe” US real government bond yields on other assets has …
18th September 2023
We expect China’s equities to fare better than those in the US in the near term. Stronger-than-expected August activity data out of China seem to have given the country’s equities a bit of a boost today. But the gains haven’t been particularly broad …
15th September 2023
We think emerging market (EM) equities in Asia will outperform those in EMEA and Latin America over the next couple of years, although we doubt they’ll do better than developed market (DM) equities. EM equities have struggled this year, at least judging …
We’ve revised up our projections for the S&P 500 and the 10-year Treasury yield, but still expect both to fall a bit by the end of this year. We have also tweaked our forecast for the US dollar. We had been projecting that the S&P 500 would struggle over …
14th September 2023
We think that the ECB is more likely than the Fed to keep rates “higher for longer”, even as the euro-zone heads for a recession. That is one reason why we expect core euro-zone bond yields to fall by less than Treasury yields over the next year or so, …
Although today’s August CPI report was broadly in line with expectations, it provided further evidence that underlying inflation in the US is coming down even as the economy there weathers the Fed’s prior increases in interest rates very well. If that …
13th September 2023
Our view on UK inflation vis-à-vis the US suggest s that bond yields are set to fall back by more in the former , adding downward pressure on sterling. Today’s mixed UK Labour market data prompted only modest falls in Gilt yields and sterling, as it …
12th September 2023
Another step up in the Chinese and Japanese authorities’ efforts to prop up their faltering currencies has given the renminbi and the yen a bit of a boost today. Alone, these measures are unlikely to prove the start of a lasting turnaround: we continue to …
11th September 2023
Although upward pressure on the 10-year Treasury yield has abated a bit, the big picture is that it has risen by ~80bp on net in the past four months. While some of this rise has reflected a reassessment in the market of how quickly the Fed will cut rates …
8th September 2023
Market implied rates suggest that investors expect inflation to normalise in the US and Europe in the next couple of years. While we share that view, we think they are overestimating the level of policy rates required to achieve inflation targets. As a …
Emerging market (EM) easing cycles are underway in earnest even as the first Fed cut remains a while away. We think this easing will help to drive EM local-currency (LC) government bond yields lower, in general, over the rest of 2023. But we still expect …
7th September 2023
Recent patterns in the US stock market are sending mixed signals about the extent to which investors are braced for an economic downturn. Our own view is that equities will struggle to make more headway this year – even if the economy avoids an outright …
The worsening economic growth backdrop suggests to us that interest rate expectations for cyclically sensitive developed market (DM) economies are too high. We expect them to fall and drag bond yields sharply lower over the next couple of years. Earlier …
6th September 2023
We doubt the strong gains in Japan’s equity market this year mark the start of a significant reversal of its decades-long underperformance; we expect it to lag the US market over the next couple of years, both in local-currency (LC) and US$ terms. Today’s …
5th September 2023
