With most major bond and equity markets on track for a second down day to start the new year, it’s fair to say that financial markets have started 2024 with something of a mild hangover. While reading too much into the first couple of days in the working …
3rd January 2024
Both bond and equity markets have started the year on the back foot. But, while a pause after the rapid rally in most asset prices over the last two months of 2023 would not be surprising, we think the outlook for both bond and, especially, equity prices …
2nd January 2024
We think “risky” assets could struggle relative to “safe” ones in the near term if, as we expect, growth disappoints, although we still think they’ll outperform over next year as a whole. At the time of writing, Thursday’s drop in equity prices had …
21st December 2023
While the valuation gap between “growth” and “value” factors in the US is high by past standards, we suspect that “growth” will generally keep outperforming in the next year or two. Since the start of this year – and as was the case between the Global …
20th December 2023
We expect the 10-year Japanese government bond (JGB) yield to rise next year, as the era of negative interest rates there comes to an end and constraints on the bond market ease. And w e think the yield gap vs the US will shift further in favour of the …
19th December 2023
Fed officials have pushed back a bit against market bets for rate cuts today, helping to send yields a bit higher. But the bigger picture is that there has been a massive reassessment of the timing and extent of rate cuts in key economies over the past …
18th December 2023
We think China’s equities could outperform those elsewhere in the near term, but suspect their longer-run outlook is fairly bleak. China’s equities got a bit of a boost earlier today from the country’s November activity data, which showed a healthy …
15th December 2023
While central banks remain reluctant to declare victory over inflation just yet, bond markets appear more than happy to do so on their behalf. With most of the policy rate cuts which we forecast over the next couple of years now already discounted, we now …
14th December 2023
Investors have revised down their expectations for the Fed funds rate a long way in recent weeks. But we think that shift will continue in the coming months, pushing Treasury yields down further. With a broad consensus that the FOMC will leave the Fed …
13th December 2023
While US inflation for November was almost exactly as the analysts’ consensus had predicted, the yields of long-dated government bonds still rose a bit on the news in most places. But we continue to think that yields will generally fall over the next year …
12th December 2023
While the gold price has retreated over the past week or so, we think it is set for a renewed rally next year as the Fed cuts interest rates and long-term real yields fall back further. After a strong run over recent months, the gold price has dropped …
11th December 2023
The global bond rally faced a setback today after the US employment report was released. But we think that yields will resume their downward march before long in most places, including the US. One exception is Japan, where we expect they will rise over …
8th December 2023
We expect the US dollar’s resilience to fade over the next year or so, and forecast it to weaken against most major currencies. There’s been something of a return of the “heads I win, tails you lose” story for the US dollar lately. The “higher for longer” …
7th December 2023
While government bond yields continue to plunge and the main euro-zone equity index has risen to a new high, the rally in US equities has stalled over recent days and the dollar recovered some ground. This suggests to us that the resurgent optimism in …
6th December 2023
Although the relative performance of the three “big-tech” sectors of the S&P 500 has underwhelmed recently, we suspect that they will be at, or near, the front of the pack again in 2024. While the three big-tech “growth-heavy” sectors that contain the …
5th December 2023
Although the spread between the 10-year German and Swiss government bond yields has widened significantly over the past couple of years, we think it will stay close to this level for a long while yet. The soft Swiss CPI data released today has added to …
4th December 2023
Despite how far it has come this year, we think the S&P 500 can make further big gains over time. The S&P 500 has made little ground this week, on net, despite the further big fall in Treasury yields. But it has come a long way lately, thanks both to a …
1st December 2023
Oil prices have seemingly had little spillover to other financial markets over recent months, and we don’t think anything from the latest OPEC+ meeting is likely to prevent a further rally in US Treasuries. While the end of the OPEC+ meeting today sparked …
30th November 2023
While we think both yields will fall next year, we expect a smaller drop in the yield of 10-year Bunds than in that of 10-year Treasuries. The 10-year Bund yield fell ~7bp so far today, after inflation data from Germany and Spain released today suggested …
29th November 2023
Given how far below “fair value” the Swedish krona appears to us, we suspect that its decade-long fall may be coming to an end. The Swedish krona has been the best performing G10 currency so far this month, having risen by nearly 6% against the US dollar. …
28th November 2023
Although pull-backs in credit spreads and in the yields of Treasuries have contributed to a strong performance from US corporate bonds in November, they have underperformed US equities regardless so far this month. We suspect that will generally stay the …
27th November 2023
We think that yield curves across Europe and the US will “disinvert” next year, as central banks shift towards easing monetary policy. Although Gilt yields have risen across the curve since the UK budget announcement , the shape of the sovereign bond …
24th November 2023
While the Freedom Party’s victory in the Dutch parliamentary election was a big surprise, there is in our view only a very small probability that it will have a substantial impact on financial markets. Instead, we suspect that the economic outlook will …
23rd November 2023
We think investor enthusiasm about AI could yet boost equity prices further. Boardroom drama at OpenAI – one of the most well-known AI research companies – has been in the news this week, after the CEO was unexpectedly removed from his role, only to …
22nd November 2023
The fall in US Treasury yields has driven rebounds in the yen and renminbi against the US dollar, and we expect this trend to continue through at least the next year or so. Amid the rally in “risky” assets over the past week, gains in FX markets against …
21st November 2023
Victory for maverick Javier Milei in Argentina’s presidential election means the country is about to embark on yet another economic experiment. While it is hard to say what that will bring for its financial markets, the promise of shock therapy has …
20th November 2023
‘Growth’ stocks have held up well vis-à-vis ‘value’ stocks this year despite the surge in real yields. But relatively optimistic earnings expectations for growth stocks may prevent them from steaming ahead even if, as we expect, real yields fall further. …
17th November 2023
A thawing in China/US tensions could, in our view, help “risky” assets in China for a while by reducing the “China risk premium” that seems to have emerged. But we doubt it would fully reverse the recent underperformance of China’s equity markets relative …
16th November 2023
Investors seem to be banking on a “Goldilocks” US economic environment which, if sustained, might lead to bull markets for most bonds, equities, and currencies. But we think this is a bit optimistic. Financial markets are having a great time since the …
15th November 2023
While past dips in the 10-year Treasury yield since inflation peaked proved to be short lived, we think that yield will continue to fall from here. Investors have taken the softer-than-expected US CPI data for October, published today, as confirmation …
14th November 2023
Moody’s decision to revise down its outlook for the US sovereign credit rating may add to the growing sense that market participants are becoming more worried about the fiscal outlook in the US. So, it is worth assessing to what extent such concerns are …
13th November 2023
Although yesterday’s poorly digested auction of 30Y Treasuries served as a reminder that the outlook for fiscal policy has the potential to undermine US long-dated government bonds, we still think their yields will end 2024 lower than they are now given …
10th November 2023
While the US dollar has bounced back a bit this week, its struggles over the past month or so are in some ways similar to the lead up to its sharp fall in Q4 of last year . But we think a comparable slide over the coming months looks unlikely . After …
9th November 2023
Following the release of our new analysis on real equilibrium interest rates (R*) last month, we held an online Drop-In last week and in-person Roundtable events with clients yesterday to discuss our findings. This Update answers several of the questions …
Given our pessimistic view of the economy in the US, we think that equities there will fare quite poorly in the near term. But the biggest components of the S&P 500 might hold up better. Equities have bounced back sharply over the past ten days, with the …
8th November 2023
Despite some differences in the monetary policy outlooks for Australia and the US, we doubt 10-year yields in the two economies will diverge much. Earlier today the Reserve Bank of Australia (RBA) made what looks likely to be one of the last moves in the …
7th November 2023
We think the risks to the “goldilocks” view being discounted in markets are skewed towards a bigger slowdown in the US than is currently discounted, driving credit spreads up over the coming months. The market reaction to data in the US last week, rounded …
6th November 2023
We think today’s big moves in markets in the wake of October’s US Employment Report are a sign of things to come over the next twelve months or so. More evidence that the labour market in the US is cooling and that wage growth there is moderating (see …
3rd November 2023
The yields of UK government bonds (Gilts) have dropped back in recent days, and we think that they will fall further over the next year or so, even if they settle far above their post-pandemic lows. UK government bond yields have fallen a bit further …
2nd November 2023
The Treasury’s Quarterly Refunding announcement (QRA) today may have eased some upward pressure on Treasury term premia, but we think these premia are unlikely to fall further over the coming years. Although the Treasury today increased the auction size …
1st November 2023
As is often the case, it is hard to know just what to make of the Bank of Japan’s latest policy announcement. Our sense is that the resulting rise in Japanese government bond yields is more likely to endure than the sharp fall in the yen. To recap, the …
31st October 2023
A renewed surge in the spreads of private-label commercial mortgage-backed securities (CMBS), at a time when the spreads of high-yield (HY) corporate bonds have remained fairly subdued (see Chart 1), has attracted little attention in US bond markets amid …
30th October 2023
Today’s rebound in Amazon’s share price following news that its sales were better than expected in Q3 has shored up the performance of the ‘Magnificent 7’ in what has otherwise been a tough week for most of them amid a mixed bag of reports, lingering …
27th October 2023
Spreads in Greece, Italy, Portugal, and Spain have diverged in unusual directions this year, and we doubt that these trends will revert any time soon. As was universally anticipated, the ECB stood pat at its meeting today: policy rates were kept unchanged …
26th October 2023
We expect the US Treasury 10-year/2-year yield spread to turn positive before long, and subsequently rise further over the next year or so. The rapid move towards “disinversion” of the US Treasury yield curve seems to have regained steam today as yields …
25th October 2023
Long-term Treasury yields have risen to new cyclical highs despite a generally weak global economic backdrop. Short-term “technical” indicators also suggest to us the surge in yields may have run its course. PMI survey data released earlier today was …
24th October 2023
Concerns over supply -demand dynamics in the Treasury market seem to be a key factor pushing up Treasury term premia. But we think rising inflation uncertainty among investors has also played a part. The ACM estimate of the 10-year Treasury term premium …
23rd October 2023
US financ ial conditions may soon tighten further, as t he economy slows and credit spreads rise. But, by then, the 10-year Treasury yield may be falling. On Thursday, the 10-year Treasury yield briefly broke through 5% for the first time since 2007. That …
20th October 2023
Big banks in the US have reported quite strong earnings in Q3 but, given our pessimistic view of the economy there, we doubt that their stocks will outperform much in the next couple of months. Earnings season started last week in the US, and most major …
19th October 2023
We think China’s improving economy may help stop the fall in the country’s stock markets, and see them outperform those of the US for a bit. China’s stronger-than-expected Q3 GDP data, released earlier today, seem to have given the Hang Seng Index a small …
18th October 2023
