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We think 2025 will be a better year for the Japanese yen against the US dollar than 2024 has been, as the relative monetary policy picture shifts more decisively in its favour. A Fed cut and a hold from the Bank of Japan (BoJ) might seem like a surprising …
19th December 2024
UK equities have kept up with other non-US ones in recent months despite a string of weak domestic activity data and stubborn inflation pressure. We think they will outperform most non-US markets in 2025, with the FTSE 100 hitting 9,000 by end-2025. The …
18th December 2024
We think corporate credit spreads in the euro-zone will widen only slightly next year, despite dim economic prospects. Corporate credit spreads, as captured by the option-adjusted spreads (OAS) of ICE BofA Corporate Investment grade (IG) and High Yield …
17th December 2024
We think US equities will fare better in 2025 than the other major asset classes we monitor, as the AI bubble inflates further. But we expect equities elsewhere generally to lag those in the US and provide worse returns than “safe” sovereign bonds. We …
While equities in Germany have managed to ride out weak growth and political uncertainty this year, those in France have not. We suspect that they will all fare poorly next year, as those adverse conditions remain and a trade war takes a toll. Today …
16th December 2024
The recent breakdown in the relationship between yen/dollar and the relative performance of stock markets in Japan and the US in local-currency (LC) terms makes it hard to predict how these stock markets will fare against one another if, as we envisage, …
13th December 2024
Given our dovish view of ECB policy, we expect German Bund yields to fall back in 2025, and to diverge further from US Treasury yields. Unlike the Bank of Canada (BoC) and the Swiss National Bank (SNB), the European Central Bank (ECB) cut its policy rates …
12th December 2024
The Treasury market has been quite subdued since the US election, including today d espite a slightly disconcerting CPI report . We don’t expect it to become a whole lot more volatile in 2025 either, even allowing for concerns about the fiscal outlook. We …
11th December 2024
While emerging market (EM) dollar bonds have gained some ground lately, they have underperformed US high-yield corporate bonds in total return terms, and we suspect they will continue to lag next year. The stripped spread of the JP Morgan Global EMBI …
10th December 2024
Investors’ enthusiasm for AI appears to have supported an increasingly broad set of equities of late, even if much of the associated rise in market capitalisation remains concentrated in a few of the largest firms. In August we noted that investors had …
The Hang Seng index enjoyed another stimulus-related boost today but we’ve seen similar spikes before. For now, we’d caution against interpreting the latest developments as confirmation large-scale stimulus is on the way, and we still think Chinese stocks …
9th December 2024
We think the rally in 10-year Treasuries over recent weeks reflects both the incoming US economic data and changing perceptions towards Trump’s policy agenda. But we don’t expect this rally to continue. The November employment report, released today , was …
6th December 2024
Despite their low absolute and relative valuations, we think China’s equities will continue to lag their US counterparts over the coming year . It’s been a good twenty-four hours or so for global equity markets, thanks in part to falling “safe” asset …
5th December 2024
This early edition of the Capital Daily outlines our initial thoughts on the market implications of the political drama in Korea. Rarely does a combined sell-off in a country’s stocks, bonds, and currency feel like a relief rally. But the situation in …
4th December 2024
The probable imminent collapse of the French government is not having much impact on bond markets elsewhere in the euro-zone. And we think contagion risks will remain limited, as long as the monetary union itself is not called into question. One of the …
3rd December 2024
President-elect Trump’s latest tariff threat, this time against the “BRICS” economies, is another early taste of his combative approach to trade policy and its potential impact on financial markets. The chance of a BRICS currency (or another alternative) …
2nd December 2024
We now think the 10-year JGB yield will rise further, the yen will make more ground against the US dollar, and Japan’s equities will struggle to make much headway (in yen terms). Inflation in Japan looked, only a couple of months ago, to be firmly on the …
The spread between 10-year French and German government bond yields has risen again, and we forecast that it will continue to trend up next year. The spread between the yields of 10-year French OATs and German Bunds has surged in recent days, reaching a …
29th November 2024
We held an online session on US import tariffs on 26th November. (See a recording here ). In this Update we answer the questions we were most asked. What are Trump’s motives for threatening tariffs and will he follow through? Trump has spoken about using …
National inflation data for November released today suggest that euro-zone inflation has edged up this month, but we think this is just a blip. We still expect inflation to drop below target next year and the ECB to cut interest rates by more than …
28th November 2024
We expect the New Zealand dollar to fall against the US and Australian dollars over the next year or so, and fare worse than most – if not all – other G10 currencies. Today’s as-expected 50bp rate cut by the Reserve Bank of New Zealand (RBNZ) didn’t move …
27th November 2024
We aren’t convinced the outperformance of US small-cap (SC) equities since Donald Trump’s victory on 5 th November sets the tone for the first half of 2025. We doubt they will start to fare better than large-cap (LC) equities over a sustained period until …
26th November 2024
The spread between 10- and 2-year Treasury yields has ‘inverted’ again, partly because the nomination of Bessent as US Treasury secretary has eased fiscal concerns. But we forecast the curve to steepen by more than most expect over 2025 as the Fed …
25th November 2024
We discussed the global impact of higher tariffs in a Drop-In on Tuesday, 26th November. Click here to watch the 20-minute online briefing. In this Focus, we construct a framework to explore the channels through which an import tariff works, which we use …
November’s weaker-than-expected Flash PMIs for the euro-zone prompted investors to lower their policy rate expectations. Even so, we still expect more easing than implied in money markets, so we think Bund yields will fall a bit further. The euro-zone …
22nd November 2024
Given our expectation that the Trump administration will push forward with plans to raise tariffs across the board, we have generally revised down our forecasts for stock markets outside the US. And with China being the main target of the trade war, we …
21st November 2024
We don’t think the S&P 500’s AI tailwind has run out of puff yet, despite the seemingly lukewarm market reaction to Nvidia’s latest profit result. It’s tempting to see a warning sign for the broader market in the reaction to Nvidia’s latest profit …
Inflation has picked up in the UK but, unlike in the US, we doubt that any worries about stronger price pressures will be sustained. That’s why we still expect Gilt yields to fall. UK CPI inflation , released earlier today, went back above the Bank of …
20th November 2024
We doubt upward pressure on Japan’s long-term bond yields will persist for long, as the Bank of Japan tightens policy by less than investors anticipate and yields in the US remain quite stable. The 10-year JGB yield has risen a lot since October. Despite …
19th November 2024
Although last week’s pull-back in the S&P 500 coincided with a big increase in the 10-year TIPS yield, we don’t think this marks the start of prolonged period of weakness in US equities driven by government bonds. Our view is that the S&P 500 will resume …
18th November 2024
We think that downward pressure on Chinese equities will intensify over the coming year or so, as the boost from largely insufficient fiscal support fades and Trump’s incoming administration proceeds with plans to impose additional tariffs. China’s …
15th November 2024
We expect the Treasury yield curve to steepen further over the coming year, but driven by falling short-dated yields rather than – as has been the case in the wake of Trump’s win – rising long-dated ones. As had been widely expected prior to the election, …
14th November 2024
While investors shrugged off today’s news on US inflation, they seem increasingly concerned about its longer-term outlook. We share their view and expect Treasury yields to rise a bit further still. Today’s inflation release showed that US CPI for October …
13th November 2024
We doubt the S&P 500 will come a cropper in 2025 even though the index fell in 2018 when Donald Trump began to wage a less ambitious trade war than the one he is planning now. Although the S&P 500 was struggling today at the time of writing, it had been …
12th November 2024
The euro has suffered more than most in the wake of Trump’s victory and we doubt that will let up anytime soon. Given our view that tariffs will be imposed next year and the ECB will ease by more than investors expect, we forecast the euro to slide to …
11th November 2024
Could the collapse of Germany’s ruling ‘traffic light’ coalition open the way to more effective governance for Europe’s largest economy? What bearing will political uncertainty have on its financial markets? How will Donald Trump’s pending return …
We expect the policies that will be delivered during Donald Trump’s second term to be a headwind for equities in the US. We still anticipate strong gains next year on the back of growing AI-enthusiasm, but not far beyond as the resulting bubble bursts. …
8th November 2024
With the US election out of the way and markets starting to settle down after some dramatic swings yesterday, attention now turns back to the more humdrum topic of central bank policy and the near-term economic outlook. While the global easing cycle is …
7th November 2024
We have revised some of our key market forecasts in response to Donald Trump’s victory and the news that the Republicans are on course to regain full control of Congress. These include higher projections for the 10-year Treasury yield and the greenback. …
This early edition of the Capital Daily provides our first thoughts on the market reaction to the likelihood of a second Trump term. The US election has seen a stark shift to the Republican Party, with Trump claiming victory in the Presidential race and …
6th November 2024
Although the outcome of the US election plainly matters for Treasuries, there is a risk of overegging this. After all, a large part of the recent moves in Treasury yields seem to have been due to the economy rather than the election. Our sense is that a …
5th November 2024
Investors are braced for turbulence in the Treasury market, even allowing for the big moves that we’ve already seen in it recently. That’s hardly a surprise, given the result of tomorrow’s election is on a knife-edge and the contrast in the protagonists’ …
4th November 2024
October’s distorted payrolls probably won’t change the outlook for the Fed, which we expect to cut by 25bp next week. Instead, earnings season and the looming US election continue to dominate markets. Treasury yields initially plunged in response to the …
1st November 2024
We think that if Vice President Harris wins the US presidential election next week, she would be more likely to stick to policy continuity, and EM risk premia would remain low. If former president Trump is elected, we would expect an initial adverse …
While inflation in the US and elsewhere has generally converged towards target this year, it might continue to haunt central bankers for a while yet, and in turn keep investors on their toes. There was nothing too scary in the inflation data released …
31st October 2024
The sell-off in the Gilt market after today’s budget announcement in the UK probably reflects concerns that the Chancellor’s fiscal plans will result in an increased a supply of bonds and less monetary easing. We will be reviewing our forecast for Bank …
30th October 2024
With just a week to go in the pivotal US election, the race remains close and markets look increasingly tense. We see three key points to consider as the vote draws nearer. First, while Trump appears to have the momentum, the election is far from a done …
29th October 2024
Equities have held up well in the face of the sell-off in Treasuries over the past month, although they have struggled to break to new highs over the past couple of weeks. But w e doubt that pattern will last; our base case remains that bond yields will …
28th October 2024
While the perceived probability of a Trump win has increased over recent weeks, we believe there is still ample scope for a sizeable repricing across markets once the election outcome becomes clear. We think a Republican “sweep” would probably lead to …
We suspect Asian currencies would underperform under a Trump presidency, even if they don’t seem to have been affected worse than others by the apparent rise in his chances of winning lately. At face value, it’s surprising how well Asia’s currencies …
25th October 2024
