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Today’s decision by the ECB to cut the deposit rate by 25bp was widely anticipated, and even the press conference provided little new information. We stand by our view that too much easing is now discounted in money markets, which is why we think …
12th September 2024
The adverse reaction in the stock market to today’s report on US consumer prices suggests inflation still matters to investors in equities, even if it has become a less important concern for them than economic growth over the past two months. Recall that …
11th September 2024
Although softening global demand for oil has pushed the Brent Crude price to a near three year low, we don’t think the global economic outlook will prevent strong equity gains. While they have often tended to move together in the past, equity and oil …
10th September 2024
Further mixed-to-weak US economic data and sharp falls in the equity markets last week means that, rightly or wrongly, the so-called “Fed put” is now back in the spotlight. Our sense is that it would still take a significant further deterioration in the …
9th September 2024
Although today’s news about the US labour market disappointed investors, we think it is in line with higher Treasury yields and a rebound in US stocks. The market reaction following the US employment report for August appears to reflect increased worries …
6th September 2024
A week of decidedly mixed economic data has seen the tone shift towards risk-off across financial markets, with safe haven currencies on the front foot and the US dollar staging a bit of a recovery in the wake of today’s weak, but not disastrous, US …
Even though the PBOC is trying to prop up local government bond yields while the Fed is gearing up to cut rates, we think bonds in China will fare a bit better than those in the US. The PBOC has been flagging for some time that it is uncomfortable with …
The Treasury yield curve has steepened in recent weeks amid growing recession concerns, but we doubt one will materialise this time . We expect the curve to steepen further over the next year or so, with 10-year yields rising and 2-year yields falling. …
5th September 2024
We held online Drop-In sessions earlier this week to discuss the outlook for major DM and EM economies and the risks that they face as we look forward to 2025. (See a recording here .) This Update answers some of the questions that we received, including …
Investors' concerns about the health of the US economy have intensified again, contributing to a selloff in global equity markets. The US stock market rode out an earnings recession last year thanks in large part to enthusiasm around AI, but we think it …
4th September 2024
A disappointingly small rebound in the headline index of the US ISM manufacturing survey for August appears to have put some relative pressure on cyclical sectors of the S&P 500 today, which is down more than 1% the time of writing. The bigger picture, …
3rd September 2024
Chinese equities tumbled on Monday, and while we see scope for them to recover a bit in the coming months, we are quite pessimistic about their medium-to-long term prospects. Chinese stocks had a bad start to the month. US equities rose on Friday, which …
2nd September 2024
US and euro-zone inflation data released today did little to change our view that both the Fed and the ECB will cut interest rates by 25bp in September, as investors seem to expect. But we think both central banks will ultimately cut rates by a bit less …
30th August 2024
The dollar has rebounded a little this week ahead of next week’s crucial US non-farm payrolls report. The incoming data this week has generally supported our view that the US is on track for a soft landing, and if we are right in thinking that payrolls …
Weaker-than-expected US data and a dovish shift from the FOMC have led to a sharp fall in interest rate expectations in the US, driving the dollar down as the market turmoil at the start of August has largely unwound. The yen has continued to rally, as …
We think the AI rally has further to run, despite investors’ apparent disappointment with Nvidia’s rapid profit growth. The sag in Nvidia’s share price in after-hours trade, despite seemingly barnstorming profit results , naturally raises the question of …
29th August 2024
The ongoing reassessment of the monetary policy outlook in the US and Europe has (again) made the UK look like an outlier. We doubt that will last. Since the start of the summer, expected interest rates have fallen significantly in most major economies, …
28th August 2024
It’s perhaps surprising that financials have outperformed the S&P 500 during the recent bout of market turbulence . (See Chart 1.) After all, Treasury yields have fallen and the outlook for the US economy has darkened, both of which might have been …
27th August 2024
We expect most Asian currencies to make further gains over time, even if their biggest rallies may now be behind them. Much attention in FX markets over the past month or two has focused on the surge in the yen, which has continued to make headway over …
Fed Chair Powell’s dovish keynote speech at the Jackson Hole conference today has reinforced the sense that not only are FOMC rate cuts imminent, but they may also be front-loaded. That suggests downside risks to our forecasts for US Treasury yields and …
23rd August 2024
The dovish speech by Fed Chair Jerome Powell at Jackson Hole and the minutes of the FOMC Meeting in July released on Wednesday have left the greenback lower against all G10 currencies this week. This adds to the batch of weaker-than-expected activity and …
Even though Treasury yields have edged up today ahead of Jerome Powell’s speech at Jackson Hole tomorrow, we think there’s still some scope for them to rise further, as we think too much easing is now discounted in money markets. That said, we don’t think …
22nd August 2024
We think Asian currencies will generally continue to rise against the US dollar over time, albeit perhaps not quite as quickly as they have lately. A lot of attention has focused lately on the rally of the Japanese yen. But it’s worth taking note of the …
21st August 2024
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 …
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
