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With the Fed set to finally start loosening policy and a soft landing still looking like the most probable outcome for the US economy, we think unfavourable rate differentials and continued robust risk appetite will lead to some further weakness in the US …
21st August 2024
Nearly all of the pullback in the S&P 500 since the bout of rotation in the stock market began in the wake of June’s CPI report on 11 th July has now been reversed. Admittedly, the same cannot be said for the rotation itself. But we remain of the view …
20th August 2024
While we expect the yen to rise further this year and next, we think this won’t stop Japanese stocks from making gains, even in local-currency terms. The Japanese yen has risen by roughly 1% against the US dollar today. This seems to reflect a general …
19th August 2024
The dollar remains on the backfoot as calm has been restored quickly in financial markets, with this week’s key economic data providing renewed support for the “soft landing” scenario. Next week is lighter on the data front but features the minutes from …
16th August 2024
The relief felt in markets over the past week or so as worries about the US economy have dissipated makes sense to us. So we expect the rebound in equity markets to continue . The market reaction (or lack thereof ) to US data released this week supports …
While expectations for interest rates in the UK have already fallen by 40bp by end-2025 since mid-July, our projections for UK CPI inflation to remain below the 2% target for much of 2025 and 2026 suggest to us that the Bank of England (BoE) will ease …
15th August 2024
Conditions have stabilised after a turbulent few weeks in financial markets, and we expect the rebound in equity markets over the past week or so to continue. Our assessment is that the market fallout from the weak early August US data was …
We think there is better news on China’s economy in the pipeline that could underpin a rally in its lowly valued stock market. But in our view there is less scope for gains in China’s bonds. The CSI 300 Index registered a ~1% gain today, following the …
The muted reaction to today’s US CPI data reflects that most investors already expected inflation to fall to around 2% before long and remain there. But last week’s turmoil highlighted that when everyone is banking on one outcome – in this case, inflation …
14th August 2024
The further rally in stock markets today leaves both valuations and earnings looking consistent with a “soft landing” in the US. So it would not take much for equities to struggle if the economy were to deteriorate – although that isn’t our base case. The …
13th August 2024
While a big reduction in speculative positioning against the Japanese currency may mean that future moves in global financial markets will be less extreme than recent ones, it doesn’t preclude more turbulence if, e.g., this week’s US data disappoint. Much …
12th August 2024
After a turbulent start to the week, financial markets have stabilised over recent days, with asset prices and risky currencies recovering some of their sharp falls in the wake of the run of poor US economic data that prompted a massive sell-off across …
9th August 2024
At Banxico’s meeting yesterday, worries over the weakness in the Mexican economy outweighed concerns over the sell-off in the Mexican peso and prompted the central bank to restart its easing cycle. Banxico’s disregard for the peso’s depreciation seems …
Heightened US recession worries have helped unwound some of the stretched positions in high-carry EM currencies, resulting in their exchange rates moving closer to their “fair values” (judging by our models). While our base case is still for a US soft …
Financial markets have generally now unwound about half of the big moves from late last week and early this week, helped by jobless claims data today soothing concerns over a US economic recession. In some cases, we expect these recoveries to continue; …
8th August 2024
We’re not so sure the yen’s gains are done, even though it sagged earlier today. The yen has today continued to unwind Monday’s rally, with the latest headwind being some dovish comments from Bank of Japan’s (BoJ) Deputy Governor. Among other things, the …
7th August 2024
Sentiment has improved in Asian markets today, especially in Japan where equities have rallied very strongly. We think there are a few observations worth noting of relevance for global markets. First, we’re still sceptical that the unwinding of the yen …
6th August 2024
Japan’s government has intervened in the FX markets to weaken the yen far more often than to strengthen it. But FX interventions have become very rare over the past two decades and our sense is that the government is welcoming a stronger exchange rate in …
The yen surged today, and some Asian equity indices plunged, as investors worried about a “hard landing” in the US economy. We think there are two key questions to consider. First, could the yen rally any further? It has now surpassed our long-held …
5th August 2024
Renewed fears of a US recession have increased the chances of additional rate cuts from the Fed. But we don’t think that the US economy will stand in the way of an equity rally for much longer. The US Employment Report for July released today seemingly …
2nd August 2024
Between a dovish message from the FOMC on Wednesday and a shockingly weak non-farm payrolls report today, the dollar is ending a turbulent week on the back foot. US interest rate expectations have seen a massive drop as recession fears now appear to have …
The US dollar has remained rangebound against most other major currencies in July, even as expected interest rates have fallen sharply in the US in the wake of softer inflation and employment data. That reflects falling interest rate expectations …
Financial markets have largely taken the dramatic events in the US presidential race over the past month in stride. While the race now appears to be back to a coin toss, the prospect of a second Trump term remains the key uncertainty – a Harris presidency …
1st August 2024
Bond yields have fallen in the US and the UK after the Fed signalled an imminent rate cut and the Bank of England delivered one. But only in the UK do we see more room down for yields. US Treasury yields have fallen further following the Fed meeting …
The latest rate hike by the Bank of Japan (BoJ) has implications for domestic and global markets – we think there are several points to note. Today’s decision by the BoJ to tighten policy by more than discounted in the markets was accompanied by a …
31st July 2024
We think the yen’s rally will continue, but suspect that won’t stop the Australian and New Zealand dollars – alleged victims of the carry trade’s unwind – from making some ground over the next year or two. Australia’s Q2 inflation data took a bit of a …
Today’s release of inflation and activity data for the euro-zone has in our view slightly reduced the chances of a cut from the ECB at its next meeting. However, the bigger picture is that the data released over the past month still suggest to us that a …
30th July 2024
The lack of much reaction on net in markets to today’s statement by the UK’s new Chancellor suggests to us that investors remain confident in the Labour Party’s commitment to fiscal discipline. But the disputed ‘revelation’ that the country’s public …
29th July 2024
Despite the possibility that the unwinding of the yen “carry trade” has amplified the global stock market sell-off lately, we think equity prices could rebound even if the yen continued to strengthen. The simultaneity of the yen’s recent rally and the …
26th July 2024
At face value, the US dollar remains in something of a lull: the DXY Index is on track to end the week roughly where it ended the previous two. But that apparent stability belies the significant moves in both currency and broader asset markets this week. …
We think that, in the absence of a recession, “big tech” stocks will regain the lead before long, regardless of the pace of falling inflation. US stock markets have taken a glass half-full view of today’s key US data release , which revealed that both US …
25th July 2024
While the pound has outperformed all major G10 currencies so far this year, we still expect it to depreciate against the greenback later in the year as the Bank of England (BoE) eases monetary policy more than money markets currently discount. While it …
24th July 2024
Today’s sell-off in the US stock market in the wake of a poor reception to yesterday’s results from the first two members of the ‘Magnificent 7’ to report during this earnings season is likely to have reassured those arguing we are in the early stages of …
We think there are a number of factors supporting the recent rally in US bank shares, not just the rotation out of tech stocks. So, while we doubt this rotation is here to stay, we think bank stocks will recover further ground on other ‘non-tech’ sectors. …
23rd July 2024
President Joe Biden’s decision to drop his re-election bid adds another element of uncertainty to the election campaign, but it is unlikely, by itself, to alter the calculus facing market participants. Biden’s withdrawal (unprecedented for a sitting …
22nd July 2024
The US dollar has bounced back over the past couple of days as interest rate expectations in the US have rebounded a little and the risk-off shift in equities bled into currency markets. While the Japanese yen has given back some of its …
19th July 2024
We expect Japan’s stock market to continue to struggle in yen terms, but to fare better in US dollar terms over the rest of the year. Asian equities have succumbed to the sell-off in global tech stocks this week. But in Japan’s case, the strengthening yen …
Investors’ expectations for ECB rate cuts have not changed much over recent months and today’s meeting did little to change that. Instead, euro-zone assets have been influenced more by French politics of late; and while contagion concerns have eased, we …
18th July 2024
A recent surge in the Russell 2000 after the US CPI report for June was published last week has prompted claims that we are entering the initial stage of a secular rotation into US small-cap stocks. We are not convinced, for four reasons. First, what has …
17th July 2024
Japan’s intervention in support of the yen is not enough in itself to generate a sustained rebound in the yen. But with the FOMC (finally) nearing its first rate cut while the BoJ continues to tighten its policy stance gradually, we think the tide is now …
We expect short-term US Treasury yields to keep falling more rapidly than long-term ones, eventually putting an end to more than two years of an inverted yield curve. Despite a small rebound today after strong retail sales data were published, short-term …
16th July 2024
Recent events have increased the perceived likelihood of another Trump presidency and, in the process, provided a clearer steer on how market participants expect such an outcome to affect key financial markets. Four key points stand out. First, between …
15th July 2024
The US dollar is again ending the week on the backfoot in the wake of yesterday’s softer-than-expected US CPI report and what looks (potentially) like another round of FX intervention from Japan’s Ministry of Finance. Short-term momentum has now shifted …
12th July 2024
We think the rally in Treasuries and pullback in the dollar since US CPI data was released yesterday have further to run. But we doubt the big rotation within equities yesterday is a sign of things to come. The reaction to US CPI data , released …
The continued weakness of the renminbi and the yen against the US dollar despite the narrowing of interest rate differentials via-a-vis the US is something of a conundrum, but our sense remains that both currencies will rebound against the dollar later …
11th July 2024
Another fairly encouraging US CPI report seems unlikely to blow the buoyant S&P 500 far off course given the implications for Fed policy. Indeed, it strengthens the case for a rate cut in September. Our base case is that the economic backdrop will remain …
We think that corporate bonds will continue to underperform equities, as credit spreads are already low, economic growth moderates, and equities benefit more from enthusiasm about AI. After spiking in the first two weeks of June, credit spreads have …
10th July 2024
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 …
