Latest from BCA Research
There is a path to a soft landing, but it is a narrow one. We estimate that there is only a 20% chance that the US will avoid a recession before the end of 2025. We are currently neutral on global equities, but expect to downgrade stocks to underweight during the summer.
The sharp move higher in copper prices is missing a clear fundamental catalyst. Meanwhile, the cyclical outlook for the global economy in general, and manufacturing activity in particular, is unlikely to provide a tailwind. Given that aggregate copper inventories on global exchanges have been rising briskly, there are high odds that the copper price surge will soon reverse.
In this Insight, we revisit our "higher for longer" theme for the Reserve Bank of New Zealand, in light of the latest central bank meeting. In conclusion, we are inching towards a more dovish RBNZ ahead. Ergo, we recommend some fixed income and currency trades.
The RMB 500 billion program is small, as it is equivalent to only 4% of property developers' total funding from the past 12 months. This will preclude a recovery in property construction this year. Corporate profits will determine the path of China’s share prices on a cyclical time horizon. Deflation in China will persist for now, which will depress corporate profits even if volumes grow modestly.
We are positive Private Credit but currently underweight Public BDCs. Today’s market pricing and sentiment in BDCs are excessively optimistic. Long-term investors should await a better entry point. Traders may find an attractive short. This report also peels back the Public BDC onion and presents over/underweights across individual BDCs via our filtering methodology. Also included at the end of this report is an updated presentation titled 'Private Credit: Drivers Of The Boom And Understanding Risks On The Horizon,' recently presented at GII’s Private Credit Roundtable in Australia. It features updated charts and additional analysis.
The economic schism in the world economy, between the non-US developed economy in recession and the US in strong growth, is unprecedented during our lifetimes. Now the schism will continue in reverse, as the non-US developed economy rebounds while the US fades. There are important implications for rates, the dollar, and sector and regional equity allocation which we discuss. Plus: base metals are a tactical short.
The death of the Iranian president reinforces our base case view of Middle Eastern instability and at least minor oil supply shocks. Rapid geopolitical developments in recent weeks are pointing to a new bout of global instability. The US is hobbled by its election. Conflicts with Russia, China, and Iran are all now escalating at the same time, at least marginally. Investors should reduce risk and shift to more defensive assets, markets, and sectors.
Q1 Earnings and sales growth were strong, but the devil is in the details: Without the Magnificent Five, earnings growth for the index would have been negative. On a positive note, margins have stabilized, and earnings growth is expected to broaden into yearend. Companies are optimistic about the economy. Development of AI applications is in full swing, but few companies are monetizing them yet. Consumer spending is strong but is slowing. We reiterate our underweight of consumer sectors, and overweight of Software and Services as the “don’t fight AI” adage holds.
We dig into the USD-denominated Emerging Market Sovereign Index to see which credit tiers and countries offer value relative to US Credit.