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In the wake of the political tumult in France contrasting with newfound stability in the UK, the outlook for the exchange rate between the euro and sterling has come into spotlight. We think that yield differentials will play a much more important role …
9th July 2024
The results of France’s parliamentary elections mean it should avoid the large, unfunded fiscal expansion that two of the three major political groups were advocating. But it also means France is very unlikely to be able to reduce the deficit as required …
8th July 2024
The surprising results of the French legislative elections have not triggered much of a market reaction. While investors appear to have been relieved by the far-right National Rally (RN)’s failure to be in a position to govern, the strong showing of the …
We expect Treasury yields to fall a bit further, but we doubt that will lead to a weaker dollar. At first glance, the US Employment Report for June , released today, seemed to bring good news on the economic front, with a stronger-than-expected gain in …
5th July 2024
The US ISM services data published yesterday suggested that US economic growth slowed in June. Even so, the S&P 500 index surged on the news. And we think it will rise much further, as stock market performance increasingly decouples from the real economy, …
4th July 2024
Recent developments have brought the global spotlight onto sovereign bonds in India and China. We expect the former to fare the best of the two. We’ve written lately about the relative prospects for equities in India and China, arguing in favour of the …
3rd July 2024
Despite the continued depreciation of the yen so far this year, we still expect it to rebound against the greenback supported by its relatively low valuation and the start of the easing cycle in the US. Although the yen has remained stable today against …
2nd July 2024
We continue to expect equities to outperform most other assets through the end of next year, as the hype around AI builds and lower inflation facilitates more monetary easing in some places than investors are discounting. The tech-heavy US stock market …
1st July 2024
Investors have welcomed the broadly unsurprising results of the first round of the French legislative elections, but the discount on French financial assets is still there and, in our view, likely to stay. The final results of the election’s first round …
Incumbent President Biden’s uneven performance during the debate yesterday with his predecessor and challenger, Donald Trump, has reduced Biden’s perceived chance of winning re-election significantly. Financial markets have not reacted much to this …
28th June 2024
The last US tech bubble inflated in a different way to this one. A comparison of the two leads us to conclude that this bubble will continue to inflate , despite the recent wobble in Nvidia’s share price . To re-cap, forward twelve month (FTM) earnings …
27th June 2024
Although it’s showed little signs of it lately, we still expect the yen to rebound against the dollar. The yen’s recent struggles have left it its weakest level against the US dollar since the 1980s. Given that the USD/JPY rate has breached 160, where the …
26th June 2024
Nvidia has entered correction territory, but we doubt this will mark the beginning of the end of enthusiasm about artificial intelligence (AI). Instead, this might usher in a new phase of a bubble we expect will keep inflating in the next year or so. …
25th June 2024
Nearly all major emerging market (EM) currencies have fallen against the US dollar so far this year, but we think the downside for most of these currencies is limited from here. While most EM currencies are starting the week on a strong note, they have a …
24th June 2024
This Update summarises the answers to some of the questions which clients raised in our recent online briefing about the forthcoming French legislative elections. The questions are divided into three sections: politics, economics, and markets. (The online …
Weaker-than-expected euro-zone PMIs in June leave us confident in our view that bund yields will edge down over the coming months, while we doubt spreads will fall back much in France or Italy. This also supports our view that the euro will remain on the …
21st June 2024
Recent political uncertainty in France has taken a big toll on equities there, but stock markets elsewhere in the euro-zone have generally avoided major selloffs. That’s broadly consistent with past episodes of country-specific flare-ups in the region, …
We think the S&P 500 will make further gains over the coming months, even though it’s already fared well this year and is approaching our existing end-year forecast. As such, we’ve revised that forecast up. Meanwhile, we think equities elsewhere will …
Despite the many twists and turns in bond markets this month amid mixed signals from central banks, most sovereign bonds in developed markets (DM) have rallied on net. We expect this to continue, with yields falling further in the coming months. The three …
20th June 2024
The US stock market has hit another fresh all-time high, with its ascent is an increasingly lonely one driven by a handful of its constituents. That pattern may be difficult to sustain indefinitely, but we remain optimistic about the outlook for US …
19th June 2024
Although the Reserve Bank of Australia (RBA) – which left policy on hold today – looks set to be the last developed market central bank to join the easing cycle now underway among developed economies, we think more important for long-term bond markets …
18th June 2024
We expect the renewed underperformance of small-cap equities vis-à-vis larger ones, which is now near its most extreme in two decades in the US, to continue there over the next year or so. (See Chart 1.) That’s because we suspect that the stock market …
17th June 2024
French government bonds and equities have sold off this week, and the euro has weakened. A lot of bad news now seems priced in, but we suspect the discount on French assets is here to stay. Investors have now had some time to digest French President …
14th June 2024
Although falling Treasury yields may continue to exert some downward pressure on Japanese Government Bond (JGB) yields, we don’t think that will drive them much lower by the end of the year. The rollercoaster ride that Treasury yields have been on since …
13th June 2024
We doubt the outcome of the UK’s general election will have a big impact on UK equities in general. Nonetheless, we still expect them to continue to underperform US equities. We don’t think the Labour Party’s return to power – which the polls suggest is …
Today’s release of the US CPI data for May offered some respite in markets after last Friday’s stronger-than-expected May payrolls data. On balance, we continue to anticipate that the Fed will eventually cut by a bit more than what is currently priced …
12th June 2024
We think that China’s “tech” equities could resume their rally, but that they’re unlikely to see anything like the gains their developed market peers have. China’s tech sectors fared better than most of its equities today, falling only a little amid a …
11th June 2024
French President Emmanuel Macron’s decision to call for snap elections has triggered a negative reaction in markets, not only in France but also in the rest of the EU. Even though the far-right National Rally has abandoned its most extreme economic …
10th June 2024
Although we expect equities in general to fare well over the next year or so, we think that falls in most commodity prices will weigh on the energy and materials sectors. That would be bad news for stock markets with big energy/materials exposure and …
Another strong reading on the US labour market has reversed much of the recent drop in US interest rate expectations but we continue to think Treasury yield are headed lower later this year. Today’s US non-farm payrolls report for May came in at a …
7th June 2024
While euro-zone inflation data has recently surprised to the upside, which was reflected in the hawkish tone of today’s ECB meeting , we still think the 10-year Bund yield will fall faster than the 10-year Treasury yield by end-2024. Although today’s 25bp …
6th June 2024
Investors appear to have shifted their bets away from stocks expected to benefit from using AI and doubled down on those expected to benefit from enabling the AI revolution. But the bigger picture is that AI hype has been continuing to support the US …
India’s election result isn’t, in our view, reason to turn downbeat on the country’s equity market, its wobbles earlier this week notwithstanding. But with a very positive story seemingly still priced in to India’s equities, both on the political and …
Although the gap between 10-year Treasur y and Canadian Government Bond (CGBs) yields has reached the highest level in at least three decades today, we think it will widen even further in the next couple of years . The 10-year CGB yield has fallen ~15bp …
5th June 2024
The US stock market has been pulled in different directions by economic data since last week. But we suspect that the general trend in the next year or so will be up, as equities benefit from at least moderate economic growth, looser monetary policy, and, …
4th June 2024
Elections in South Africa, India, and Mexico have generated sizeable reactions in financial markets. Those moves may not last – often the immediate reaction to political events proves overdone – but they highlight the potential for electoral surprises to …
3rd June 2024
The fall in Treasury yields over the past two days has failed to lift equities, partly because of waning AI hype weighing on the market. That’s a contrast to much of the past year or so, when the opposite has been true. If both of these forces combine in …
31st May 2024
Our View: We expect equities to outperform most other assets as a bubble fuelled by AI-enthusiasm continues to inflate, supported by a backdrop of resilient economic growth and monetary easing cycles In particular, we expect US equities to continue to …
The early results from South Africa’s general election suggest that the African National Congress (ANC) will fall short of securing a majority, and may be forced into forming a coalition with the centre-right Democratic Alliance (DA), or either (or both) …
30th May 2024
We expect the 10-year Bund yield to fall by the end of the year as the ECB loosens policy more than investors are currently discounting. Judging by the initial fall in 10-year Bund yield this morning, German state-level inflation data released earlier in …
29th May 2024
The yield of 10-year Japanese government bonds (JGBs) is now almost where we forecast it to be at the end of the year. Admittedly, we doubt that the Bank of Japan (BoJ) will tighten policy as quickly as investors think in the next two years. But we …
28th May 2024
We doubt yesterday’s drop in the US equity market will prove a harbinger of further weakness to come – indeed, stocks have already rebounded today. But the unusual combination of a sizeable drop in the overall index even as one of its largest constituents …
24th May 2024
While the prospect of the Labour Party returning to government in the UK for the first time in 14 years might raise a few eyebrows in the financial markets, we wouldn’t put much store by the fact that some of its times in office since first forming a …
23rd May 2024
We think equities in the Asia-Pacific (APAC) region may benefit most from improving sentiment towards China in the near term. But we think that economic / market exposures to the AI revolution, not to China, will be the bigger influence on the relative …
While stronger-than-expected inflation data from the UK have led us to push back a bit our forecast for the start of the Bank of England’s easing cycle, we still project many more rate cuts than most anticipate. This feeds into our view that Gilt yields …
22nd May 2024
Despite the hawkish rhetoric from central bankers over the last few days, we still expect long-dated government bond yields in most developed markets (DM) to fall over the next year or so. 10-year government bond yields across DMs have generally been …
21st May 2024
The US dollar has been on the back foot amid the renewed rally in “risky” assets. While we think US stocks will soon re-establish the lead among global equities, we doubt US equity outperformance would benefit the dollar much. After reaching a …
20th May 2024
New measures to support China’s property sector have brought more cheer to Chinese equities. But, while we continue to think they will fare well in the coming months, we ultimately expect them to lose ground to stocks elsewhere over the next year or so. …
17th May 2024
Improving sentiment towards Chinese equities has sparked a further rebound over the past month, with stocks there having generally outperformed those elsewhere over this period. While we continue to see near-term upside, we think they will ultimately …
Although the “big-tech” sectors have been out of favour compared to others so far this quarter, we expect them to regain the lead before long and help the US stock market outperform those elsewhere. The S&P 500 reached a new all-time high yesterday, and …
16th May 2024
