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The sharp rise in Treasury yields this week has probably contributed to the sell-off in US equities, but it isn’t the only factor. And even if Treasury yields remain high, we doubt that would prevent the US stock market from rising further this year. The …
2nd April 2024
Equities have enjoyed another strong quarter and, while a lot of good news is priced in, we think they can extend their winning streak. Sovereign bonds have, by contrast, struggled over Q1; but we think they have scope to rally, and rate cuts by major …
28th March 2024
The US dollar has eked out small gains against some major currencies so far this week, leaving the DXY index just below 105 at the time of writing. During an otherwise quiet week, the February PCE data release out of the US tomorrow may add to the …
We think the bulk of the fall in corporate credit spreads is now in the rearview mirror, especially in the US. After falling markedly since November last year , the option-adjusted spreads (OAS) of the US ICE BofA Corporate Bond Indices have stabilised …
27th March 2024
We continue to think that policymakers in China and Japan will do enough to keep their currencies from weakening much further, but the risk of a break lower in one, or both, is increasing. Push-back from the authorities in China and Japan has stabilised …
We still expect the Canadian dollar to depreciate against the US dollar as interest rate differentials relative to the US widen and Canada’s terms of trade worsen. The Canadian dollar has held up well against the greenback relative to other G10 currencies …
While w e think that equities in the UK will continue to rise over the next couple of years, we suspect they will keep underperforming those in the US, and we see little scope for valuations to help them relative to other developed market equities. UK …
26th March 2024
Push-back from the authorities in China and Japan has stabilised their currencies against the US dollar today, and our base case remains that policymakers will prevent destabilising depreciations in the renminbi and yen. Nonetheless, it is worth thinking …
25th March 2024
The US dollar has bounced back from its brief drop after the FOMC’s policy announcement and Chair Powell’s press conference, and is ending the week stronger across the board. To some extent that is surprising: the FOMC’s overall message arguably had a …
22nd March 2024
While the current backdrop may keep the renminbi on the back foot against the dollar in the short term, we doubt that these headwinds will push the currency meaningfully lower this year. The renminbi has finally weakened against the dollar after more than …
This week’s flurry of central bank meeting points to growing confidence among policymakers in most major economies that inflation is on track back to target. That supports our view that long-term government bond yields will fall back a bit further this …
21st March 2024
In the wake of this week’s FOMC and BoJ policy announcements we are revising our forecast for the Japanese yen. While we still expect the Japanese yen to rebound over the course of 2024, we now project it to reach 140 by the end of the year and 135 by …
The tailwinds that have underpinned the rebound in the dollar this year seem, to us, to have run their course. While we wouldn’t be surprised if the dollar stayed firm over the coming months, we still think the greenback will edge lower – particularly …
Our view that Treasury yields will fall back a bit and that the US dollar will generally weaken by the end of the year rests on the assumption that the Fed will deliver more rate cuts than currently discounted in money markets. So these forecasts are …
20th March 2024
The Bank of Japan ended its eight-year run of negative interest rates today . We think there are several implications for Japanese – and global – financial markets. Today’s fall in the yields of long-dated JGBs suggests that investors took the hike in …
19th March 2024
Given our view that a stock market bubble will inflate in the US , we wouldn’t be surprised to see the equity risk premium (ERP) shrinking further in the near term. This might even go as far as the premium vanishing, as happened for instance at the peak …
18th March 2024
We think that, despite ongoing PBOC intervention to prop it up, the valuation of the renminbi looks very weak on a range of fundamental metrics. As such, we wouldn’t be surprised if it rose over time, especially if – as we expect – yield differentials …
15th March 2024
Stronger-than-expected CPI and PPI data out of the US were the key catalysts for the greenback’s rebound this week, as investors continued to pare back their expectations for the Fed to cut its policy rate. These expectations will be put to the test next …
The past few months have seen risk premia compress across most financial markets, and stress across core financial markets appears lower than at any point since mid-2021. While some lingering risks remain, we think that an emerging bubble in equity …
The US dollar has risen against most currencies since the start of the year, while most of our estimates of the greenback’s “fair value” are little unchanged. Taken together, this leaves the dollar somewhat overvalued in our assessment. At this point, we …
It is no surprise that the confidence of US consumers is closely aligned to the health of the stock market these days. After all, the share of households that own equities is the highest in at least three decades. With that in mind, the recent surge in …
14th March 2024
Most major equity markets and currencies in Latin America have lagged those in other regions since the start of the year, and we expect their underperformance to continue for some time. As equity markets in the US are making new all-time highs, there are …
13th March 2024
Stronger-than-expected US core CPI data did not trigger as big a reassessment in rate expectations as they did last month in financial markets, and we still forecast the Fed to start easing policy around June. Given our view that it will eventually …
12th March 2024
The impact of a second Trump presidency on Mexico’s economy would depend to a large extent on whether the USMCA deal remains intact or Mexico finds itself subject to US import tariffs. If the latter, Mexico would be one of the most affected EMs. And even …
The surge of the Japanese yen ahead of next week’s BoJ policy announcement could still prove yet another false dawn. But with the monetary policy divergence that has driven the yen down over the past couple of years set to start reversing before long and …
11th March 2024
Today’s softish US non-farm payrolls report , combined with Fed Chair Powell’s relatively neutral testimony to Congress earlier in the week, has put an end to the dollar’s strong start to 2024, and suggests to us that the greenback will remain on the back …
8th March 2024
Today’s favourable reaction in financial markets to February’s US Employment Report probably reflects the inflation-friendly news of softer-than-expected growth in average hourly earnings amid mixed signals from the establishment and household surveys …
We doubt that ECB policy will have much impact on German bond yields this year and next – if anything, risks are skewed to the upside. But the outlook may be a bit brighter for Italian bonds, and we expect the Italian-German spread to narrow. The yield of …
7th March 2024
Today’s UK budget announcement contained no major surprises, leaving our forecast for the 10-year Gilt yield to fall further this year and sterling to struggle against other major currencies intact. Our UK Economics service is the place to look for the …
6th March 2024
We think there are three key points for investors to note from today’s announcements at the National People’s Congress annual “Two Sessions”, where the country’s authorities, among other things, have announced fresh growth and fiscal targets. First, …
5th March 2024
We don’t think Fed rate cuts are a necessary condition for the stock market bubble to inflate further. After all, most measures of equity risk premia have scope to fall as hype around AI grows. A central theme of 2024 so far has been the paring back of …
4th March 2024
The sharp narrowing in Colombia’s current account deficit last year to its lowest level since the aftermath of the Global Financial Crisis looks encouraging, but it was entirely a result of the weakness of domestic demand. As the economy recovers, the …
The dollar has remained roughly unchanged against most major currencies over the past two weeks. Given that our expectations for upcoming data releases and central bank meetings – notably, nonfarm payrolls and the ECB meeting next week – are not far from …
1st March 2024
Today’s rise in the 2-year Japanese government bond yield to its new highest level since 2011 raises the question of whether this is the start of a far bigger sell-off in the bond market, or just another false dawn that will reinforce the reputation of …
January US PCE inflation is in line with our view that the Fed’s preferred measure of inflation will return to target by mid-year, allowing policymakers to cut rates further than investors seem to expect. So we still think that the 10-year Treasury yield …
29th February 2024
The US dollar has made further gains against most major currencies over the past month or so. Interest rate expectations have edged higher in the US and in most places outside Asia, weighing particularly on that region's currencies. While we no longer …
28th February 2024
The RBNZ’s decision to keep its policy rate on hold today illustrates how the bar for further rate hikes has become increasingly high for most central banks, even in the face of upside surprises to inflation. With money markets in New Zealand, and most …
While enthusiasm over AI probably explains much of the “Magnificent Seven’s” outperformance in the US, the outperformance of the largest stocks in other markets is indicative of a broader shift in investors’ preferences towards larger stocks. That helps …
27th February 2024
Equities in Emerging Asia have outperformed those elsewhere in recent weeks, and we think that they’ll keep doing well during the rest of the year. Chart 1 shows that, while EM equities had a difficult start to the year (see blue bars, which show …
26th February 2024
While we think that American exceptionalism in stock markets will continue this year as a bubble fuelled by enthusiasm around AI keeps inflating, we expect equities in other developed markets (DM) to fare quite well. Nvidia and the other “Magnificent 7 ” …
23rd February 2024
The tailwind of US equity outperformance appears to be fading for the greenback, as the DXY Index looks set to post its first weekly fall in 2024. A pullback after such a streak isn’t all that surprising, and an upside surprise in PCE data out of the US …
The recent back-up in long-term Treasury yields, reflecting concerns that inflation isn’t coming down fast enough to prompt the Fed to cut rates in the near future, raises the question of how much worse things might get for bonds if Donald Trump is …
22nd February 2024
We think victory for Donald Trump in this year’s US presidential election would lead to higher Treasury yields than if incumbent Joe Biden (or another candidate) won. In our view, another Trump term would also be a headwind for equities – especially …
So far this year, the US dollar has moved in tandem with the relative performance of US equities. While that may continue over short time horizons, we doubt the rally in US equities we anticipate over the next couple of years will be a significant …
21st February 2024
Almost all major emerging market (EM) currencies have fallen against the US dollar so far this year, and we think they will remain under pressure until interest rate expectations in the US shift lower again. EM currencies have been no exception to the …
We expect China’s bonds, currency and equities to rally over the rest of this year. After declining to cut its benchmark MLF rate on the weekend, the PBOC restarted its easing today with a larger-than-expected reduction in its 5-year Loan Prime Rate. (See …
20th February 2024
We think that corporate credit spreads will narrow a bit more in the US and Europe. Along with lower “risk-free” rates, this will in our view contribute to pushing yields down this year. Credit spreads in the US and Europe have generally fallen since 19 …
19th February 2024
We think Japan’s stock market will take a turn for the worse before long, weighed by what we expect will be a rebound in the yen. And while that nonetheless could mean decent returns in US dollar terms, we doubt Japan’s equities will keep up with those in …
16th February 2024
The theme of the week has been one of diverging inflation stories which have helped boost the US dollar. These divergences came not just between economies (hot in the US and cold in the UK, for example) but also within economies, with mixed messages from …
We expect India’s stocks, bonds, and currency to rally over the remainder of this year. It’s been a strong start to the year for India’s financial markets. The MSCI India Index of the country’s equities has been the strongest performer of MSCI’s large …