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We expect equities in Germany to continue rising even though the economy there appears to be in another ‘technical’ recession. But we expect them to lag those elsewhere over the coming year or so. It looks fairly certain that Germany’s economy is in …
25th September 2024
Policymakers in China announced major monetary and financial policy stimulus measures today, but we doubt these will be enough to drive a sustained rebound in China’s struggling stock market. China’s equity market jumped today on the announcement of a …
24th September 2024
We think government bond yields in the euro-zone will rebound a bit, particularly in those countries, like France, where public finances are concerning. The September PMIs released today for the euro-zone and its two largest economies painted a very bleak …
23rd September 2024
After the Fed recently delivered its first rate cut, we look at previous US loosening cycles to analyse how emerging markets assets have performed. This time around we expect the US to skirt a recession, and our view is that most of the easing cycle is …
20th September 2024
While we do think the Bank of Japan will surprise with another hike this year, we suspect it will coincide with a more gradual strengthening of the yen rather than the sharp rally we saw last time. As was widely expected, the Bank of Japan left policy on …
While UK Gilt yields might rise a bit further in the near term, we think that they will fall back before long, as the Bank of England eventually delivers more rate cuts than most anticipate. After delivering a first cut in August, the Bank of England left …
19th September 2024
Markets barely reacted to the Fed’s 50bp rate cut, on balance, and our base case is that further cuts won’t move the needle too much either. The Fed started its easing cycle with a bang on Wednesday with a 50bp cut. That said, it was probably a “hawkish …
Policymakers have put themselves in a tricky spot ahead of today’s pivotal FOMC announcement. But whatever the size of the policy rate cut they end up delivering, the outlook for the US economy is more important in determining where Treasury yields and …
18th September 2024
We doubt the gap between expected interest rates in the US and its trading partners will keep shrinking, given what’s priced into the money markets. That could potentially buoy the dollar in time, assuming the Fed shies away from slashing its policy rate …
17th September 2024
Despite the peso’s recent rebound, we suspect that an unstable political and economic outlook means that it, and Mexican financial assets more generally, will perform poorly over the next year or so. Since early April, when the MXN/USD rate hit its lowest …
China’s renminbi looked, before the country’s markets closed for the mid-Autumn festival, to have finally beaten this year’s depreciation pressure. Not only did it break its string of weakness to rally against the dollar last month, but measures of …
16th September 2024
US households’ appetite for equities often depends on how confident they feel. Its strength in recent years is therefore rather surprising, given that their mood hasn’t been upbeat. Sentiment did perk up this month, judging by the University of Michigan’s …
13th September 2024
We now think the RBNZ will be one of the few central banks to cut rates below neutral this cycle, which would be bad news for the New Zealand dollar. New Zealand markets have so far shrugged off the RBNZ’s dovish tilt – and rate cut – last month. While …
All of the historical data supporting this publication can be found on our new Rate Cuts & Asset Returns dashboard. All of the forecasts in this publication can be found on our US Macro or Financial Markets dashboards. This Focus explores the key lessons …
12th September 2024
Today’s decision by the ECB to cut the deposit rate by 25bp was widely anticipated, and even the press conference provided little new information. We stand by our view that too much easing is now discounted in money markets, which is why we think …
The adverse reaction in the stock market to today’s report on US consumer prices suggests inflation still matters to investors in equities, even if it has become a less important concern for them than economic growth over the past two months. Recall that …
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 …
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 …
29th August 2024
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 …
