Monetary
Fed Governor Lael Brainard delivered an important speech last week in which she laid out the intellectual justification for the Fed to soon pause its rate hike cycle. This week’s report reviews her arguments and explains how they inform our monetary policy and investment views.
Global investors should sell Chinese assets on strength this year and diversify into other emerging markets. American investors should limit China exposure. Short CNY-USD.
We remain bullish the yen, despite the BoJ maintaining yield curve control. In this report, we outline a few reasons for this stance.
We remain bullish the yen, despite the BoJ maintaining yield curve control. In this report, we outline a few reasons for this stance.
In this Strategy Insight, we assess the best and worst opportunities for inflation-linked bonds within the major developed markets. We see a case for underweighting inflation protection in the euro area, while overweighting Japanese inflation-linked bonds with the Bank of Japan moving away from yield curve control at a time of relatively high Japanese inflation.
In response to lower energy prices and China’s reopening, European assets prices are outperforming. Will the ECB spoil the party?
In this week’s report, we look at whether global growth conditions remain conducive for a continued decline in the dollar. Our findings are mixed, while there are some economic green shoots, the overall growth picture remains weak. This argues for some consolidation of dollar losses in the near term.
The Fed will respond to December’s CPI report by downshifting to a 25 bps hike pace next month. We anticipate two more 25 bps hikes before the Fed goes on hold.
China's economic recovery will be led by consumer spending on services rather than the industrial sector. The current equity market leadership – outperformance by tech stocks – is unsustainable. Persistent deflationary forces will compel policymakers to inject more liquidity and bring down interest rates to reflate the economy. Hence, the RMB will resume its decline against the USD soon.
Slowing growth would be bad for equities, but so would stronger growth since it would mean more rate hikes.