Fixed Income

What’s going on? The market-weighted stock market is up. But the equally-weighted stock market is not up. Neither is credit. Neither are industrial metal prices. Neither is the oil price, despite two waves of OPEC output cuts. We explain the dichotomy. Plus: European basic resources stocks can rebound, but Netherlands is likely to reverse.

This week we present our Portfolio Allocation Summary for June 2023.

The Fed is still on track for a June pause, even after May’s strong nonfarm payroll print.

In this report, we follow up on the upgrade to our US duration stance from last week with a review of our rates views and government bond allocations outside the US. We conclude that while we now find US Treasuries to be more attractive from a value perspective, even better value is available in euro area and UK government debt.

The AI craze could further lift stock prices, boost capex, and delay the onset of the next recession. Looking further out, reaping the profit windfall from AI may take longer than many investors expect.

Symptoms of a liquidity trap for Chinese households are appearing. Our proprietary indicators for the marginal propensity to spend among households and enterprises continue falling. There has been a paradigm shift in Beijing’s approach to policy stimulus. Authorities will be slow to introduce large stimulus. Hence, China-related financial markets are set to fall further.