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It’s possible that the bubble in Artificial Intelligence (AI) equities has burst, and that the US stock market’s broad-based strength will end soon. Nonetheless, this isn’t our baseline scenario, partly because demand for AI hardware doesn’t seem to be …
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
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
We think the rally in developed market government bonds has gone a bit too far and that yields will rise a little despite (further) rate cuts by the major central banks. One exception is the UK where we still think investors are expecting an excessively …
The slide in Nvidia’s shares after the release of its latest consensus-beating results bolsters the argument that it was priced for perfection. But that doesn’t mean its party is over, or that the AI bubble is bursting. To re-cap, Nvidia’s share price …
29th August 2024
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 …
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
While the S&P 500 is now nearly back to its all-time high in the wake of Fed Chair Powell’s dovish message at Jackson Hole, underlying risk premia are still somewhat larger than before the July correction began and the previously all-conquering “AI” …
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
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
US corporate credit spreads have all but unwound the rise they saw during the recent market turbulence, and are back at very low levels by past standards. (See Chart 1.) We expect them to remain compressed over the next year or so, as long as the US …
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
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 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 …
16th 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 …
15th August 2024
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
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 …
9th August 2024
Concerns about a US recession have led to a sharp reassessment in financial markets; some of the shifts in the wake of the latest US non-farm payrolls report look overdone (and have to some extent reversed). Given that we still think a “soft landing” is …
Equity markets in East Asia suffered very sharp declines earlier this week, but have generally recovered partially since. We think the rebound has scope to go a lot further as recession fears in the US prove overblown and an AI-related bubble reflates, …
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
While the recent financial market meltdown has pushed some euro-zone government bond spreads up, we don’t see good reasons for risk sentiment to remain so downbeat. So we expect the upward pressure on those spreads to ease soon. But we think the relief …
6th 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 …
We doubt the AI-fuelled rally in global equities has burst, despite a rout in the stock market in the US after some disappointing data there last week and a plunge in Asian indices today . It feels less like 2000 – when the dotcom bubble popped – than …
5th August 2024
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 …
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
Given that we broadly share investors' view about how far DM central banks will ease monetary policy this year and next, we forecast government bond yields in most developed markets to end 2024 close to their current levels. Meanwhile, we think investors …
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 …
We have revised down our forecasts for government bond spreads in Spain and Portugal, but we continue to think that those in France, as well as in Italy and Belgium, are more likely to rise than fall. The dust has now settled in bond markets after the …
31st July 2024
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 …
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
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
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 …
26th July 2024
We think the capital market reforms announced as part of China’s Third Plenum won’t be enough to reinvigorate China’s equities, which we still think will provide disappointing long-run returns. It’s been a tough few days for China’s equities, which had …
Strong public investment growth alongside overall fiscal prudence have contributed to the rallies in India’s bond and stock markets over the past couple of years. However, we don’t see much in the latest budget to revise our view that gains in the coming …
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
