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The US dollar’s record run of 10 consecutive weekly gains has brought it to its strongest level since last December (see Chart 1), and prompted renewed talk of FX intervention in Asia. We think that market participants have now gone too far in discounting …
28th September 2023
We think the “tech”-heavy sectors of the stock market, which have largely shrugged off the rout in Treasuries, will generally continue to do well. The Treasury market sell-off has continued in earnest this week. The 10-year Treasury and TIPS yields have …
10Y Treasuries have underperformed 2Y Treasuries over recent months, bucking the usual pattern after the final Fed hike (if, as we think, the final hike was in July). But we think the stage is now set for 10Y Treasuries to outperform over the next year or …
27th September 2023
We think that investors’ enthusiasm for artificial intelligence (AI) will grow again next year and inflate a bubble in stock markets. This is just one of the many consequences that AI will have on the economy, in our view, as we discuss at length in our …
26th September 2023
Another set of downbeat business surveys out of the euro-zone and an increasingly cautious tone from ECB officials have put the EUR/USD rate under renewed pressure. But more broadly market participants do not appear particularly downbeat on the prospects …
25th September 2023
Amid the flurry of central bank announcements, the Fed doubling down on “higher for longer” proved to be enough for the greenback to eke out small gains against most other currencies, taking the DXY index to a tenth consecutive weekly rise. While comments …
22nd September 2023
With the Bank of Japan offering little new at its policy meeting earlier today and US Treasury yields surging higher in the wake of the FOMC’s hawkish message earlier in the week, pressure on the yen has ratcheted up further. Unless US policy changes …
With most European G10 central banks now at, or very close to, the ends of their tightening cycles, this note examines where the European G10 currencies stand and how we see the outlook for the main euro cross-rates. In short, we think the Swiss franc …
Despite the hawkish rhetoric from central bankers on both sides of the Atlantic, we still expect most long-dated government bond yields in developed markets (DM) to fall over the next couple of years. After a surprisingly hawkish message from the FOMC …
21st September 2023
Although high “carry” emerging market (EM) currencies have held on to most of their gains during the greenback’s recent rally, we still think the outperformance of these currencies is likely to reverse over the coming quarters amid growing headwinds for …
We remain of the view that investors are overestimating how high the federal funds rate will be over the next couple of years, and that Treasury yields will fall as a result. A lot of discussion around the upcoming FOMC decision has focused on the path …
20th September 2023
The recent rally in oil prices has had only a limited impact on bond and equity markets so far. And we doubt that this will change anytime soon, given our view that the rally will not last much longer and that other factors will continue to play a bigger …
19th September 2023
The latest increase in the 10-year TIPS yield, to a post-Global - Financial-Crisis high of ~2% at one point last week, has barely caused a ripple in the markets. More generally, the influence of “safe” US real government bond yields on other assets has …
18th September 2023
Another week, another rise in the DXY index, which at the time of writing is on track for a ninth consecutive weekly rise. Continued robust activity data in the US and the ECB signalling the end of its rate hiking cycle accounts for the greenback’s …
15th September 2023
We expect China’s equities to fare better than those in the US in the near term. Stronger-than-expected August activity data out of China seem to have given the country’s equities a bit of a boost today. But the gains haven’t been particularly broad …
While policymakers’ efforts to prop up the renminbi and the yen alone are not enough to generate a lasting turnaround , they will probably do enough to buy time until US interest rate expectations and Treasury yields fall back and the dollar depreciates …
We’ve revised up our projections for the S&P 500 and the 10-year Treasury yield, but still expect both to fall a bit by the end of this year. We have also tweaked our forecast for the US dollar. We had been projecting that the S&P 500 would struggle over …
14th September 2023
We think that the ECB is more likely than the Fed to keep rates “higher for longer”, even as the euro-zone heads for a recession. That is one reason why we expect core euro-zone bond yields to fall by less than Treasury yields over the next year or so, …
Although today’s August CPI report was broadly in line with expectations, it provided further evidence that underlying inflation in the US is coming down even as the economy there weathers the Fed’s prior increases in interest rates very well. If that …
13th September 2023
Our view on UK inflation vis-à-vis the US suggest s that bond yields are set to fall back by more in the former , adding downward pressure on sterling. Today’s mixed UK Labour market data prompted only modest falls in Gilt yields and sterling, as it …
12th September 2023
Another step up in the Chinese and Japanese authorities’ efforts to prop up their faltering currencies has given the renminbi and the yen a bit of a boost today. Alone, these measures are unlikely to prove the start of a lasting turnaround: we continue to …
11th September 2023
Although upward pressure on the 10-year Treasury yield has abated a bit, the big picture is that it has risen by ~80bp on net in the past four months. While some of this rise has reflected a reassessment in the market of how quickly the Fed will cut rates …
8th September 2023
The US dollar looks set to end the week higher against nearly all other major currencies. Remarkably, the DXY Index is set for an eight consecutive weekly rise, something that has rarely occurred since 1990. (See Chart 1.) And while that index is …
Although the Canadian dollar has held up relatively well among G10 currencies, we think it will weaken in the coming quarters as investors discount a more dovish policy path for the Bank of Canada (BoC). Despite the broad-based strength in the US dollar …
7th September 2023
Emerging market (EM) easing cycles are underway in earnest even as the first Fed cut remains a while away. We think this easing will help to drive EM local-currency (LC) government bond yields lower, in general, over the rest of 2023. But we still expect …
The worsening economic growth backdrop suggests to us that interest rate expectations for cyclically sensitive developed market (DM) economies are too high. We expect them to fall and drag bond yields sharply lower over the next couple of years. Earlier …
6th September 2023
We doubt the strong gains in Japan’s equity market this year mark the start of a significant reversal of its decades-long underperformance; we expect it to lag the US market over the next couple of years, both in local-currency (LC) and US$ terms. Today’s …
5th September 2023
New measures to support China’s struggling property sector seem to have sparked some renewed optimism in the country’s financial markets. We think there are three points to note. First, despite the rally, investors still seem quite downbeat on China. The …
4th September 2023
A run of soft US labour market data has left the dollar on track to end the week slightly lower against most major currencies, threatening to break the DXY index’s six-week winning streak despite a strong rebound in the wake of the ISM manufacturing …
1st September 2023
Despite today’s rebound, the general fall in Treasury yields over the past week against a backdrop of mixed economic data suggests investors could be starting to come round to our view that price pressures will continue to ease almost irrespective of how …
The cyclically-sensitive antipodean currencies have had a tough year so far, and a fair bit of bad news already appears priced in to both the aussie and the kiwi. Nonetheless, we don’t think their recent rebound will prove the start of a sustained …
The dollar has rebounded in August but remains broadly unchanged on the year so far. We continue to think that it (and the yen) will rally over the second half of the year as the long-anticipated recessions finally take hold in the US and other advanced …
31st August 2023
We think China’s AI-related stocks may outperform their US counterparts over the rest of this year. But their longer-term prospects look less upbeat, to us. AI-related stocks in China were boosted overnight after a number of China-based firms launched …
Stronger-than-expected inflation data from Germany and Spain today add to the uncertainty surrounding the near-term path of ECB policy. On balance, we think that the ECB will raise rates once more in this cycle and that government bond yields will fall by …
30th August 2023
We expect the gap between high yield (HY) credit spreads in the euro-zone and the US to narrow over the rest of this year as spreads in both economies climb. The option-adjusted spreads (OAS) of HY corporate bonds in the euro-zone have climbed to their …
29th August 2023
PMI and other data released this week have added to evidence of the relative strength of the US economy amid a weakening global backdrop, shifting yield gaps in favour of the greenback and pushing it higher against most major currencies yet again. (See …
25th August 2023
Market participants have taken Fed Chair Powell’s much-anticipated keynote speech at the Jackson Hole conference today as somewhat hawkish, even if the fallout, so far, is some way from the violent market moves which followed his remarks at last year’s …
Gilt yields and sterling have fallen from their cycle highs over the past month or so, and we think the worsening economic growth outlook in the UK and elsewhere mean that this trend will continue over at least the next couple of quarters. Although …
24th August 2023
Stronger-than-expected Q2 earnings from Nvidia have extended this week’s relief rally in stock markets. While we think that US equities could falter over the rest of the year as growth disappoints, we suspect that AI enthusiasm will trigger an even …
The weaker-than-expected PMI data from European economies is consistent with our view that the euro and sterling will fall further against the dollar over the next couple of months. Earlier today, PMI data for August out of the euro-zone and UK came in …
23rd August 2023
Although the 10-year JGB yield has gradually been creeping up towards the new 1% ceiling tolerated by the BoJ, this is no surprise given a broad-based rise in 10-year sovereign yields elsewhere. Indeed, if it weren’t for the BoJ’s ongoing Yield Curve …
22nd August 2023
We think global credit spreads will rise further by end-2023 in the face of disappointing growth. Having generally fallen since mid-March, credit spreads have been on the rise recently. Over the past week, for example, both the option-adjusted spread …
21st August 2023
The US dollar has continued to grind higher, with the DXY index on track for a fifth consecutive weekly gain on the back of more bad news out of China , continued pressure on risk sentiment, and a new cycle high in long-term US Treasury yields. In light …
18th August 2023
Although the US stock market has started to come under pressure from rising Treasury yields, the valuation of equities relative to government bonds is still a long way from being as stretched as it was before the dot com bubble burst and on the eve of the …
The continued rise in Treasury yields, following what may well have been the Fed’s final interest rate hike last month, contrasts with the experience of recent tightening cycles. But we still expect falling inflation between now and the end of the year to …
17th August 2023
With the headwinds growing for China’s economy, we think its equity markets will struggle, its 10-year yield will continue to fall and its currency won’t rebound as quickly as we’d thought. At the start of the year China’s economy was powering ahead. But …
Although disinflation in the UK is lagging that in the US, we expect yields in both places to fall this year. And we think that Gilt yields are set to fall by a bit more than Treasury yields through 2024 and 2025. UK CPI data for July, released this …
16th August 2023
Exceptionally high inflation in the major economies of Central and Eastern Europe (CEE) relative to elsewhere has left their currencies overvalued against the US dollar and on a trade-weighted basis in our view. We think there is scope for these …
The difficulties facing China’s economy and financial system continue to dominate much of the headlines. So far, the gloom has not made a major dent in the optimism reflected in global markets, although that could yet change. Another round of …
15th August 2023
We don’t think the ongoing troubles in China’s property sector mark the beginnings of a financial crisis, but do expect them to be a drag on returns from the country’s stock market over time. News that Country Garden – a large Chinese property developer – …
14th August 2023
