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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
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. …
26th 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 …
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 …
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
More evidence of softening in the US economy from data releases – notably, the ISM survey data and June’s employment report – weighed on US Treasury yields and left the greenback lower against most major currencies on the week. Otherwise, election-related …
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
The US dollar has edged higher over the past quarter or so, driven by the twin tailwinds of rising Treasury yields and US equity outperformance. We think these factors may continue to support the greenback over the near term, and the looming prospect of a …
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
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 …
1st July 2024
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 US dollar index looks set to end the week broadly unchanged after core PCE came in line with expectations today. Yesterday’s presidential debate in the US also does not seem to have had much impact on the dollar despite the sizable change in election …
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
The upcoming French election continues to loom over euro-zone financial markets and the euro. We think it would take a worst case scenario in which France’s fiscal outlook worsens materially to generate a sustained fall in the euro. That is a plausible …
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
Despite more central bank policy announcements this week, most currencies fluctuated within a tight range and the dollar seems set to end the week broadly flat – boosted a bit by the release of PMI data earlier today. Our sense is that this may remain the …
Latin American assets have generally underperformed those elsewhere of late, in part driven by rising risk premia on the region’s assets. We think these risk premia may rise further over the coming year or so, given our downbeat view on economic growth in …
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
The US dollar has been taken on a rollercoaster ride this week. The US CPI and PPI reports for May have suggested that price pressures are gradually easing. These somewhat promising data reports have boosted investors’ expectations for rate cuts, despite …
14th 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 …
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
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
Although the EUR/USD exchange rate is not far above multi-decade lows, we think structural factors mean that the euro is close to “fair value” relative to the US dollar and most other major currencies. So we doubt the euro will rebound against the dollar …
