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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 …
Weaker economic data from the US have bolstered our view that the Federal Reserve will be able to cut rates by more than investors currently expect. As a result, we continue to think that Treasury yields will generally fall by the end of the year. …
15th February 2024
The rise in US bond yields has put renewed pressure on the yen, but we think further downside is limited. We still expect Treasury yields to resume their downward trend and for the yen to benefit most among G10 currencies vis-à-vis the dollar from this …
We think that UK inflation will continue to fall faster and further than many seem to be expecting, paving the way for the Bank of England (BoE) to cut interest rates by more than is now discounted in markets. That helps to inform our view that today's …
14th February 2024
Today’s hotter-than-expected US inflation data makes for another bump in the road for US bond and equity markets. But we think a full-scale return to the bad old days of the 2021-23 inflation scare is unlikely, and that the US equity market will continue …
13th February 2024
Chairman Thomas Jordan’s recent comments about the franc raise questions over whether the SNB might use FX interventions to loosen monetary conditions. But we think policymakers will use the policy rate as the main tool to achieve price stability, and …
The ways things are going, our upbeat forecast for the S&P 500 of 5,500 at the end of this year may be realised in a matter of months . We doubt the rally would end there, though. Admittedly, we might be inclined in that event to pencil in an earlier end …
12th February 2024
While the dollar has fallen back a touch over the past couple of days, it has held on to most of its post-payrolls gains. The DXY index is now up about 3% on the year, having regained roughly half its drop over the last two months of 2023. The greenback’s …
9th February 2024
“High-carry” emerging market (EM) currencies have not been immune to broad-based dollar strength so far this year, and we think they have further to fall. Although investors have pared back expectations for rate cuts by major central banks (notably the …
We expect government bond yields in emerging market (EM) economies to fall over the remainder of the year, helped by a broadening easing cycle and falling Treasury yields. While the big question around monetary policy in developed market (DM) economies is …
8th February 2024
Policy support for Chinese equities may facilitate a near-term rebound, but investors probably need to be convinced that the government's attitude towards the private sector has shifted if there is to be a more sustainable rally. Chinese equities have …
7th February 2024
While not our base case, continued strength in the US economy would probably be a tailwind for the US dollar over the coming months. But even in that event, we think the dollar would eventually weaken as bond yields fell in the US relative to elsewhere as …
Although last week’s renewed underperformance of US regional banks and equity office REITs sparked fears of another mini banking crisis, a fairly steady decline in the option-adjusted spreads (OAS) of private label commercial mortgage backed securities …
6th February 2024
Oil prices have had only limited impact on US Treasury yields recently, and we suspect that this will remain the case in the next couple of years. So far this month, oil prices have fallen back quite sharply. At around $72 per barrel (pb) at the time of …
5th February 2024
The US Employment Report , released today, showed that non-farm payrolls for January came in at a whooping 353,000 – even more than the upwardly revised 333,000 number for December and almost double analysts’ median expectation. Immediately after the …
2nd February 2024
The DXY index seems set to close this week at its strongest level in almost two months, breaking out of a narrow range amid a flurry of data releases out of the US. Consistent with Fed Chair Powell’s continued emphasis on data dependence, signs of …
We don’t expect the Australian and New Zealand dollars – which have been two of the worst-performing G10 currencies this year – to fall much further. It’s been a rough start to the year for the aussie and the kiwi: although all the non-US G10 currencies …
Despite the Bank of England (BoE) following the Fed in pushing back against imminent rate cuts, Gilt and Treasury yields are on track to post big falls today. That partly reflects renewed concerns over US regional banks, and offers a reminder that for …
1st February 2024
Ahead of the first Fed meeting of 2024, we think there are two points for investors to note about how the central bank might affect markets this year. First, while the Fed may be cautious today, we see scope for Treasury yields to drop a bit more. Despite …
31st January 2024
After its sharp fall at the end of 2023, the US dollar has risen against most major currencies so far this year. Interest rate expectations have rebounded a bit in the US and in most places outside Asia, weighing particularly on the region's currencies. …
30th January 2024
The US Treasury’s latest borrowing estimates pushed long-dated yields down, and the Quarterly Refunding Announcement (QRA) on Wednesday may add to positive sentiment. But we think that a poor fiscal outlook in the US and more price-sensitive buyers will …
We think the best days for US investment-grade (IG) corporate bonds will soon be over. One reason is that credit spreads are now already very low. The option-adjusted spread (OAS) of ICE BofA’s index of US IG corporate bonds, for example, dipped below …
29th January 2024
The US dollar seems set to remain within a tight range against most major currencies this week. At face value, the stronger-than-expected GDP data out of the US might point to a return to “higher for longer”, but the growing evidence of disinflationary …
26th January 2024
Similar to the late 1990s, we think the economic backdrop in the US won’t stand in the way of a bubble inflating in the S&P 500. But unlike then, we doubt it will help the dollar much. US equities have rallied since GDP data revealed yesterday that growth …
We think the current backdrop is not as favourable for the greenback as the one that prevailed during the dot com era, so we doubt the bubble in US equities we expect would be accompanied by renewed strength in the dollar over the next couple of years. …
25th January 2024
