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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 …
The US dollar has continued to edge higher this week even in the absence of much economic data, suggesting that the gradual shift in the US election odds in favour of former president Trump continues to provide a tailwind for the greenback. With a week …
25th October 2024
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 …
We think a pick-up in global growth and the further inflation of a US equity bubble mean prospects for euro-zone equities are generally promising, despite sluggish economic growth in the region. European equities have risen, on net, so far today, more so …
24th October 2024
We expect the Japanese yen to bounce back before long, putting more pressure on the Japanese stock market, at least in local currency terms. The Japanese yen has fallen by more than 1% against the US dollar today, adding up to a roughly 8% fall since its …
23rd October 2024
The recent sell-off in long-dated Treasuries and the accompanying ‘bear steepening’ of the curve make sense given recent developments. We continue to think that the former will unwind before too long, though a Trump win would likely lift yields higher. …
22nd October 2024
Australia is exceptional. Monetary easing cycles may be in full swing in many advanced economies, but the Reserve Bank shows no appetite to cut rates yet. Even though headline and core inflation are cooling, the labour market remains too tight for comfort …
The depreciation pressure on the renminbi has abated over recent months and the USD/CNY rate is currently trading around our end-2024 target of 7.10. But with US interest rate expectations on the rise again, China’s stimulus announcements continuing to …
21st October 2024
The recent outperformance of emerging market equities, relative to their developed market peers, has almost entirely reversed in October and we think this may be a sign of things to come. Chinese equities did not react much to the larger-than-expected …
The US dollar has made further gains this week as US data continue to come in strong, contrasting favourably with the ECB’s surprisingly dovish policy announcement and softer inflation data in other G10 economies. With the US election drawing nearer and …
18th October 2024
With the US election drawing closer and former president Trump’s perceived chances of winning on the rise, financial markets may be starting to shift towards discounting a Trump win. But, in our view, that is still far from fully priced in. Since early …
The dovish tone at today’s ECB monetary policy meeting supports our view that the ECB will cut by 25bp at the December meeting. However, the risks to our policy rate forecasts are increasingly skewed to the downside. What’s more, we doubt that the easing …
17th October 2024
Falling inflation across developed markets (DM) supports our view that policy rates will generally settle at their neutral levels, close to current market pricing in most DMs. That’s why we expect long-dated bond yields to stay near their current levels. …
16th October 2024
Notwithstanding some weakness today, enthusiasm for tech stocks has returned in recent weeks. We think this enthusiasm will drive the US stock market higher, despite the optimism that is already discounted in equities and the many looming risks. Much of …
15th October 2024
China’s authorities are clearly making an effort to boost the country’s stock market, despite some seeming missteps. But we doubt any further gains will survive very long into next year. The fairly muted reaction in China’s equity markets today were, at …
14th October 2024
Another week of upside surprises to US data and hawkish noises from some FOMC members have helped the US dollar build on last week’s rebound. With money markets now shifting towards discounting a potential pause in the Fed’s incipient rate cutting cycle – …
11th October 2024
We think that the larger rise in yields in the UK than elsewhere over the past month is due to expectations that the Budget will boost demand rather than fiscal fears. That said, there is some upside risk from the Budget to our forecast for gilt yields to …
We expect sterling to weaken by ~4% against the euro and ~1% against the dollar by end-2025 . This reflects our view that the Bank of England will loosen monetary policy by more than what investors are anticipating, GBP’s high valuation and stretched …
The initial market reaction to today’s release of US inflation for September and jobless claims data suggests to us that investors may be more concerned about the latter than about the former. We think both support our view that the 10-year Treasury yield …
10th October 2024
Market participants have largely shrugged off the news that the US Department of Justice (DoJ) may seek a court-ordered break up of Google. Given the snail’s pace at which the US antitrust process moves at, that probably makes sense. Even so, it’s worth …
9th October 2024
China’s offshore equity market plunged today as the latest policy announcement from Beijing disappointed expectations. With much of the low hanging fruit (as far as valuations are concerned) now plucked, we think the bar is quite high now for further …
8th October 2024
The optimism across US equity and corporate bond markets as the labour market proves resilient makes sense to us. We think it will continue, providing a tailwind for those assets. The blockbuster US employment report for September released on Friday …
7th October 2024
The strong reading on the US labour market released today has taken the 10-year Treasury yield towards our end-2024 forecast of 4%. We expect it to stay around this level, though the risks to the upside appear to have increased over recent weeks. Today's …
4th October 2024
The US dollar is on course for its best week in two years and looks to have found a near-term floor after its sharp fall in Q2. Today’s strong non-farm payrolls report (and robust ISM surveys earlier in the week), dovish signals from the ECB and the BoE, …
The British pound fell sharply today, and we suspect that it will weaken more over the next year or so given our dovish view of Bank of England policy, the currency’s still-high valuation, and stretched speculative positioning. Sterling has dropped by …
3rd October 2024
While the latest escalation of the conflict between Israel and Iran is worrying, our view remains that it would take a significant further widening of the war, including actual disruption to energy supply chains, to make a material difference to the …
2nd October 2024
We held a Drop-In yesterday to discuss what investors should expect as Claudia Sheinbaum takes over the presidency in Mexico. A recording of the event can be found here . This Update answers some of the questions that we received, including several that …
Brent crude oil has jumped by around 4% to ~$74.5pb at the time of writing, following reports that Iran is preparing a ballistic missile strike against Israel. Much remains uncertain. A key issue – if an attack materialises – will be its size and whether …
1st October 2024
We doubt China’s equities will continue to outperform Japan’s through the end of 2025, despite their recent divergence. Stock markets in two of Asia’s largest economies have continued to head in different directions today. China’s CSI 300, for example, …
30th September 2024
Today’s release of weaker-than-expected US PCE data for August led investors to revise down slightly their expectations for the fed funds rate, and the DXY index slipped as a result. This, alongside an upside revision to US economic growth, leaves us more …
27th September 2024
We don’t see compelling reasons for policymakers in the US or the euro-zone to lower policy rates as much as market pricing suggests, so we expect long-dated bond yields there to edge up before long. That would probably be a wash for the euro. Today’s …
Most EM equities have fared well over the past week or so amid encouraging signs from China, the first Fed rate cut and broadening EM easing cycles. We think these equities will continue to fare well over the coming year, albeit not as well as US ones. …
26th September 2024
Further out, our base case is that the combination of a generally benign global economic backdrop and a dovish Fed leads to some further US dollar weakness over the next six to twelve months. But given the extent of Fed rate cuts now discounted in money …
We expect equities in Germany to continue rising even though the economy there appears to be in another ‘technical’ recession. But we expect them to lag those elsewhere over the coming year or so. It looks fairly certain that Germany’s economy is in …
25th September 2024
Policymakers in China announced major monetary and financial policy stimulus measures today, but we doubt these will be enough to drive a sustained rebound in China’s struggling stock market. China’s equity market jumped today on the announcement of a …
24th September 2024
We think government bond yields in the euro-zone will rebound a bit, particularly in those countries, like France, where public finances are concerning. The September PMIs released today for the euro-zone and its two largest economies painted a very bleak …
23rd September 2024
The FOMC’s decision to kick off its easing cycle with a bang has boosted risk sentiment – with the S&P 500 surging to a new all-time high – and put the US dollar on the backfoot again. However, the US economy is still in solid shape and Chair Powell …
20th September 2024
While we do think the Bank of Japan will surprise with another hike this year, we suspect it will coincide with a more gradual strengthening of the yen rather than the sharp rally we saw last time. As was widely expected, the Bank of Japan left policy on …
Markets barely reacted to the Fed’s 50bp rate cut, on balance, and our base case is that further cuts won’t move the needle too much either. The Fed started its easing cycle with a bang on Wednesday with a 50bp cut. That said, it was probably a “hawkish …
19th September 2024
Policymakers have put themselves in a tricky spot ahead of today’s pivotal FOMC announcement. But whatever the size of the policy rate cut they end up delivering, the outlook for the US economy is more important in determining where Treasury yields and …
18th September 2024
We doubt the gap between expected interest rates in the US and its trading partners will keep shrinking, given what’s priced into the money markets. That could potentially buoy the dollar in time, assuming the Fed shies away from slashing its policy rate …
17th September 2024
Despite the peso’s recent rebound, we suspect that an unstable political and economic outlook means that it, and Mexican financial assets more generally, will perform poorly over the next year or so. Since early April, when the MXN/USD rate hit its lowest …
China’s renminbi looked, before the country’s markets closed for the mid-Autumn festival, to have finally beaten this year’s depreciation pressure. Not only did it break its string of weakness to rally against the dollar last month, but measures of …
16th September 2024
US households’ appetite for equities often depends on how confident they feel. Its strength in recent years is therefore rather surprising, given that their mood hasn’t been upbeat. Sentiment did perk up this month, judging by the University of Michigan’s …
13th September 2024
The US dollar is ending the week on the back foot against most currencies amid mounting expectation for a 50bp cut by the Fed next week. That comes in the wake of two seemingly coordinated pieces in the FT and WSJ which suggested it will be a close call …
We now think the RBNZ will be one of the few central banks to cut rates below neutral this cycle, which would be bad news for the New Zealand dollar. New Zealand markets have so far shrugged off the RBNZ’s dovish tilt – and rate cut – last month. While …
All of the historical data supporting this publication can be found on our new Rate Cuts & Asset Returns dashboard. All of the forecasts in this publication can be found on our US Macro or Financial Markets dashboards. This Focus explores the key lessons …
12th September 2024
