Developed Countries
BCA Research’s US Bond Strategy service concludes that investment-grade corporates will outperform Treasuries in 2021, but the potential for further spread compression is limited. Junk spreads have more room to tighten, and the Ba credit tier looks…
Empirically, the current yield to maturity gives a robust sense of the returns of 30-year German government bonds over the coming five years. At the present juncture, the yield of -0.2% suggests that over the next five years, the German long bond could…
US industrial production surprised to the upside in November, rising 0.39% m/m from a revised 0.95% m/m. The positive IP number reflects continued growth in manufacturing output, which rose 0.75% m/m and beat expectations of a more muted 0.4% m/m rise. …
Overweight Vaccine efficacy announcements have paved the way for a sustainable great rotation trade into small caps and out of large caps. One of the key small size bias drivers is the delta in sector composition between the small and large cap indexes. The relative gap in deep cyclicals alone is 13% as we highlighted in recent research. Relative share prices remain far apart from the budding recovery in the commodity complex including Dr. Copper’s flirtations with seven-year highs. Thus, the small caps catch up phase has a long ways to go (top & fourth panels). The financials sector gulf is also significant, with small caps’ exposure relative to their large cap brethren clocking in at over 700bps. Already, the yield curve is steepening and there are high odds of a selloff in the bond market as the economy continues to reopen (third panel). In addition, easy fiscal policy is a tonic to the small/large share price ratio. As a flood of money enters the economy with a slight lag, small caps will continue to make up ground lost during the early stages of the pandemic (fiscal balance shown inverted, second panel). Bottom Line: A small size bias is a high-conviction call for 2021.
According to BCA Research’s US Investment Strategy service, policymakers are not letting the virus kill the economy and we expect them to continue to do so. Ample support will prime consumption while staving off the negative consequences that would follow a…
The Bank of Japan’s Tankan Survey indicates that Japanese business sentiment continues to rebound in Q4, surpassing expectations. Current business conditions, as expressed by large manufacturers, rose to -10 from -27, beating expectations of -15. Large…
The Eurozone’ M1 money supply is expanding at a 14% annual pace, its fastest rate since 1999. On the European continent, banks represent a much larger share of credit origination than they do in the US. Due to this lack of credit disintermediation, M1 still…
From 1990 to today, US Treasuries and global equities have delivered equivalent returns of roughly 7.5% on an annualized basis. This means that bonds have been the superior investment because of their significantly lower volatility. These equivalent…
Market sentiment has reached dangerously elevated levels. BCA Research recently highlighted how the bullishness embedded in both an extremely low CBOE put-call ratio and an elevated AAII bull-minus-bear spread represents a negative signal from a…
US consumer prices accelerated more than expected in November, with both the headline and core (excluding food and energy) figures picking up to 0.2% month-on-month from 0.0%. On a year-on-year basis, headline and core consumer prices were flat at 1.2% y/y…