FICC

From a technical standpoint, the dollar is due for a bounce. In this report, we review various indicators to gauge the magnitude and duration of this rally. We also recommend two new trades: sell the gold/silver ratio at 90 and EUR/SEK at 11.30.

Special Report

High realized inventories are weighing on global oil prices. We expect oil market deficits will draw on accumulated inventories over the forecast period. Petro-state instability – arising mainly from Russia and the Middle East – is a key geopolitical trend in 2023 and will likely lead to oil supply shocks. We are revising our Brent price forecasts to $97/bbl this year and $111/bbl in 2024. Investors should brace for upward price pressure – as long as recession risks remain contained – and persistent high volatility.

Core CPI rose sequentially in January compared to December, but we don’t see this as the beginning of a new trend. Disinflation is very much still in the cards for the US economy between now and the end of the year.

The backdrop for corporate bonds is turning more risky after the spread tightening seen over the past few months in the US and Europe. A tour of our favorite corporate spread valuation metrics on both sides of the Atlantic suggests a worsening cyclical risk/reward tradeoff for both investment grade and high-yield bonds, especially in the US.

We discuss the outlook for the Fed’s balance sheet and why QT is likely to continue for at least another year.

The tempo of China’s and the US’s military operations is picking up sharply. The risk of a sudden, perhaps unintended, escalation of military conflict, therefore, is rising in the South China Sea. So is the risk of another shooting war in the Middle East. Against this backdrop, China’s reopening, marginally stronger GDP growth, and massive fiscal stimulus to support renewables and defense is being rolled out. In states with high debt-to-GDP ratios like the EU and US, the risk of fiscal dominance is rising, and with it higher inflation. We remain long the XOP oil and gas ETF; the XME metals and mining ETF, and long the commodity COMT ETF to hedge this risk.

In this Strategy Insight, we go over the RBA’s recent decision and the implications of its hawkish message for AUD trades.

In this Strategy Insight, we go over the RBA’s recent decision and the implications of its hawkish message for AUD trades.

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

This week, we articulate what the actions of the three major central banks that met (Fed, ECB and BoE) mean for currency markets. This is within the context of our analysis of the latest data releases in the G10, that allows us to calibrate currency strategy.