Money/Credit/Debt
Gold and bitcoin are conceptually joined at the hip because the value of both comes from their ‘non-confiscatability’ by inflation, by bank failure, and in the case of bitcoin, by state expropriation. The sharp recent rallies in both gold and bitcoin reflect that the market has suddenly upped the value of non-confiscatability, and a plausible explanation is that recent US inflation data show that the journey to sustained 2 percent inflation has stalled, raising the risk that the Fed might balk at finishing the journey. Plus: JPM, CL, and USD/CHF are tactical reversal candidates.
Subdued credit growth and weak global trade will remain headwinds for Emirati stocks. Surging property prices, which have led to a boom in real estate stocks, will also peak soon. Stay neutral on this bourse. Sovereign credit investors, however, should stay overweight UAE in EM credit portfolios.
Europe credit flows are stabilizing, hence a major drag on the region’s growth will dissipate. What does this development imply for European equities?
Climbing US bond yields, alongside higher oil prices, might spoil the party for global risk assets. There are budding cracks in EM domestic bonds, and even though we like this asset class in the long run, investors exposed to it should reduce their positions for now.
We are not yet ready to downgrade equities on a tactical basis but continue to expect we will eventually do so. We present a checklist of indicators that we are watching to determine when to de-risk.
Italy is no longer Europe’s problem child. Investors will be better off reassessing their views of Italian assets, which represent a buying opportunity on a structural time horizon.
