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This early edition of the Capital Daily provides our first thoughts on the market reaction to the likelihood of a second Trump term. The US election has seen a stark shift to the Republican Party, with Trump claiming victory in the Presidential race and …
6th November 2024
Although the outcome of the US election plainly matters for Treasuries, there is a risk of overegging this. After all, a large part of the recent moves in Treasury yields seem to have been due to the economy rather than the election. Our sense is that a …
5th November 2024
Investors are braced for turbulence in the Treasury market, even allowing for the big moves that we’ve already seen in it recently. That’s hardly a surprise, given the result of tomorrow’s election is on a knife-edge and the contrast in the protagonists’ …
4th November 2024
October’s distorted payrolls probably won’t change the outlook for the Fed, which we expect to cut by 25bp next week. Instead, earnings season and the looming US election continue to dominate markets. Treasury yields initially plunged in response to the …
1st November 2024
We think that if Vice President Harris wins the US presidential election next week, she would be more likely to stick to policy continuity, and EM risk premia would remain low. If former president Trump is elected, we would expect an initial adverse …
While the market fallout from yesterday’s UK budget announcement is still a very long way from the 2022 “mini-budget” debacle, the surge in Gilt yields and fall in sterling over the past couple of days has some similarities to that episode. A meltdown of …
31st October 2024
While inflation in the US and elsewhere has generally converged towards target this year, it might continue to haunt central bankers for a while yet, and in turn keep investors on their toes. There was nothing too scary in the inflation data released …
The sell-off in the Gilt market after today’s budget announcement in the UK probably reflects concerns that the Chancellor’s fiscal plans will result in an increased a supply of bonds and less monetary easing. We will be reviewing our forecast for Bank …
30th October 2024
This Budget is big, both in the way it defines the government’s plans and the money it raises and spends. The key point is that it loosens fiscal policy relative to previous plans and is therefore consistent with GDP growth perhaps being a bit stronger …
With just a week to go in the pivotal US election, the race remains close and markets look increasingly tense. We see three key points to consider as the vote draws nearer. First, while Trump appears to have the momentum, the election is far from a done …
29th October 2024
Equities have held up well in the face of the sell-off in Treasuries over the past month, although they have struggled to break to new highs over the past couple of weeks. But w e doubt that pattern will last; our base case remains that bond yields will …
28th October 2024
While the perceived probability of a Trump win has increased over recent weeks, we believe there is still ample scope for a sizeable repricing across markets once the election outcome becomes clear. We think a Republican “sweep” would probably lead to …
The possibility of looser fiscal policy than previous planned in the upcoming UK Budget on 30 th October suggests the risks to our forecast that the 10-year gilt yield will fall to 3.50% by end-2025 are skewed to the upside, even if a repeat of the …
Our central forecast is that there won’t be a fiscally induced ‘crisis’ in the Treasury market. But there is clearly a risk of yields rising in response to higher term premia and more restrictive monetary policy than would otherwise be the case, if the US …
25th October 2024
We suspect Asian currencies would underperform under a Trump presidency, even if they don’t seem to have been affected worse than others by the apparent rise in his chances of winning lately. At face value, it’s surprising how well Asia’s currencies …
We think a pick-up in global growth and the further inflation of a US equity bubble mean prospects for euro-zone equities are generally promising, despite sluggish economic growth in the region. European equities have risen, on net, so far today, more so …
24th October 2024
We held online Drop-In sessions this week to discuss how we factor the US election into our thinking on the macro and market outlook for the US and other parts of the world. See here for a recording of the session focused on the US and here for the rest …
We expect the Japanese yen to bounce back before long, putting more pressure on the Japanese stock market, at least in local currency terms. The Japanese yen has fallen by more than 1% against the US dollar today, adding up to a roughly 8% fall since its …
23rd October 2024
We argued last year that the relative strength of Japan’s stock market mostly reflected the weak yen rather than a fundamental transformation of its corporate sector. Developments since then suggest that we were right and with the yen set, in our view, to …
The recent sell-off in long-dated Treasuries and the accompanying ‘bear steepening’ of the curve make sense given recent developments. We continue to think that the former will unwind before too long, though a Trump win would likely lift yields higher. …
22nd October 2024
Australia is exceptional. Monetary easing cycles may be in full swing in many advanced economies, but the Reserve Bank shows no appetite to cut rates yet. Even though headline and core inflation are cooling, the labour market remains too tight for comfort …
The recent outperformance of emerging market equities, relative to their developed market peers, has almost entirely reversed in October and we think this may be a sign of things to come. Chinese equities did not react much to the larger-than-expected …
21st October 2024
With the US election drawing closer and former president Trump’s perceived chances of winning on the rise, financial markets may be starting to shift towards discounting a Trump win. But, in our view, that is still far from fully priced in. Since early …
18th October 2024
Although corporate credit spreads in the US and the UK have nearly reached multi-decade lows, we think they will remain near those levels over the next year or so. And we don’t see spreads in the euro-zone widening either, despite dim economic prospects. …
Clients can view all of our financial market forecasts here , and all of our commodity market forecasts here . This Focus assesses the outlook for US energy equities, which have come into the spotlight of late amid swings in oil prices. In short, we …
The dovish tone at today’s ECB monetary policy meeting supports our view that the ECB will cut by 25bp at the December meeting. However, the risks to our policy rate forecasts are increasingly skewed to the downside. What’s more, we doubt that the easing …
17th October 2024
Falling inflation across developed markets (DM) supports our view that policy rates will generally settle at their neutral levels, close to current market pricing in most DMs. That’s why we expect long-dated bond yields to stay near their current levels. …
16th October 2024
Notwithstanding some weakness today, enthusiasm for tech stocks has returned in recent weeks. We think this enthusiasm will drive the US stock market higher, despite the optimism that is already discounted in equities and the many looming risks. Much of …
15th October 2024
China’s authorities are clearly making an effort to boost the country’s stock market, despite some seeming missteps. But we doubt any further gains will survive very long into next year. The fairly muted reaction in China’s equity markets today were, at …
14th October 2024
We think that the larger rise in yields in the UK than elsewhere over the past month is due to expectations that the Budget will boost demand rather than fiscal fears. That said, there is some upside risk from the Budget to our forecast for gilt yields to …
11th October 2024
A further decoupling of trade ties between the US and China or a sharp rise in Cross-Strait tensions, even if a full-blown conflict is avoided, are two big geopolitical events that we think present a big risk to the health of the “AI bubble” in the US …
The initial market reaction to today’s release of US inflation for September and jobless claims data suggests to us that investors may be more concerned about the latter than about the former. We think both support our view that the 10-year Treasury yield …
10th October 2024
The bond market sell-off over recent weeks has taken the 10-year Treasury yield to around our long-held end-2024 forecast of 4.00%. (See Chart 1.) Although significant economic, political, and geopolitical risks loom large over the coming months, we …
The valuations of “risky” assets continued to rise in the third quarter, both in absolute terms and relative to “safe” asset yields. We think that reflects the start of the Fed’s easing cycle and renewed optimism about the US economy after initial worries …
Market participants have largely shrugged off the news that the US Department of Justice (DoJ) may seek a court-ordered break up of Google. Given the snail’s pace at which the US antitrust process moves at, that probably makes sense. Even so, it’s worth …
9th October 2024
China’s offshore equity market plunged today as the latest policy announcement from Beijing disappointed expectations. With much of the low hanging fruit (as far as valuations are concerned) now plucked, we think the bar is quite high now for further …
8th October 2024
The optimism across US equity and corporate bond markets as the labour market proves resilient makes sense to us. We think it will continue, providing a tailwind for those assets. The blockbuster US employment report for September released on Friday …
7th October 2024
The strong reading on the US labour market released today has taken the 10-year Treasury yield towards our end-2024 forecast of 4%. We expect it to stay around this level, though the risks to the upside appear to have increased over recent weeks. Today's …
4th October 2024
We’re cautiously optimistic that China’s equity market will hold on to its recent gains, and perhaps even extend upon them in the near term. But we still think its long-run prospects are poor. China’s stock market has made enormous gains over the past …
The British pound fell sharply today, and we suspect that it will weaken more over the next year or so given our dovish view of Bank of England policy, the currency’s still-high valuation, and stretched speculative positioning. Sterling has dropped by …
3rd October 2024
Since mid-2022, the average stock in the industrials sector has returned more than the average stock in all other sectors of the S&P 500. This raises the question of whether investors have a rose-tinted view of the economy’s future, since industrials has …
China’s recent stimulus announcements are still at the top of many investors’ minds, at least judging by the high level of client interest in the online briefing we ran on the topic yesterday. We’ve wrapped up our answers to the most common questions we …
While the latest escalation of the conflict between Israel and Iran is worrying, our view remains that it would take a significant further widening of the war, including actual disruption to energy supply chains, to make a material difference to the …
2nd October 2024
We held a Drop-In yesterday to discuss what investors should expect as Claudia Sheinbaum takes over the presidency in Mexico. A recording of the event can be found here . This Update answers some of the questions that we received, including several that …
Brent crude oil has jumped by around 4% to ~$74.5pb at the time of writing, following reports that Iran is preparing a ballistic missile strike against Israel. Much remains uncertain. A key issue – if an attack materialises – will be its size and whether …
1st October 2024
We doubt China’s equities will continue to outperform Japan’s through the end of 2025, despite their recent divergence. Stock markets in two of Asia’s largest economies have continued to head in different directions today. China’s CSI 300, for example, …
30th September 2024
We don’t see compelling reasons for policymakers in the US or the euro-zone to lower policy rates as much as market pricing suggests, so we expect long-dated bond yields there to edge up before long. That would probably be a wash for the euro. Today’s …
27th September 2024
Most EM equities have fared well over the past week or so amid encouraging signs from China, the first Fed rate cut and broadening EM easing cycles. We think these equities will continue to fare well over the coming year, albeit not as well as US ones. …
26th September 2024
France’s new government suggested yesterday that the budget deficit will be over 6% of GDP this year, rather than the 5.6% as indicated only a couple of weeks ago. We expect the government to struggle to pass a budget which substantially reduces the …
We expect equities to fare best among the major asset classes we track through the end of 2025, as the AI bubble reinflates. We suspect government and corporate bonds will generally do less well, despite monetary easing. But we still think they’ll provide …
25th September 2024
