Latest from BCA Research
The yen's next leg isn't a fiscal story, it's an inflation one, and the BoJ is about to admit it. We lay out why a September pivot sends USD/JPY toward 99, and why global risk assets won't pay the price.
President Trump referred to the US-Venezuela agreement as the “biggest oil deal in world history.” However, oil production growth constraints limit its near-term impact on global crude markets. Instead, Middle East developments will continue to dominate oil’s trajectory over the coming months.
Next week’s CPI and PPI reports will be much more important determinants of the near-term Fed policy path than this morning’s employment report. However, if the trend of labor market tightening continues through year-end, it could lead to a re-acceleration of wage growth in 2027.
We review the track record of our broader investment strategy and individual calls. We also use this opportunity to close several positions that have become stale.
Markets have become obsessed with the rise of global long-dated yields. To some extent, we agree with the concern. Bonds are trading on "vibes," alarmed by the incoherent US geopolitical policy. Oil prices are obviously the conduit between that policy and the markets. On the other hand, growth is also robust. As such, bond market selloff is not all just negativity.The one secular theme driving the bond market selloff that does not bother us all that much is fiscal policy. We see signs — including actual budget deficit data! — that the US, policymakers and voters alike, is starting to understand that there are limits to profligacy. As such, we would advise clients with a long term focus to begin nibbling at the hated bonds.
Investors overestimate the threat current interest rate levels pose to both equities and the economy. Despite a rising long end, the gap between high-yield borrowing costs and both nominal growth and corporate profits is at five-year lows and falling. Remain overweight equities. Within Fixed Income, Upgrade High Yield and Downgrade Government Bonds and EM Debt. Downgrade Chinese Equities to Neutral.
The wide crack spread reflects a bifurcated oil market. The severity of the crude oil disruption has recently softened, while the US-Iran and Ukraine-Russia conflicts have created a perfect storm for refined product markets. Going forward, even though conditions are not yet in place for the crack spread to return to its pre-conflict level, it is likely to narrow over the coming months.