Latest from BCA Research
US monetary policy is restrictive, as evidenced by a falling jobs-workers gap. The reason that unemployment has not risen is because labor demand still exceeds supply. That will change in the second half of 2024 when the US economy succumbs to recession. Investors should increasingly favor bonds over stocks.
Comments on recent Fedspeak, bond market moves and this morning’s CPI report.
As global financial institutions like the IMF draw attention to the real-estate crisis in China, the CCP will be forced to step up regulatory and restructuring efforts to contain its spread and limit further contagion domestically and globally. The Party also will be forced to deliver stronger fiscal- and monetary-policy support to beleaguered banks and developers. We expect it to do so, which keeps us bullish energy and metals. Failure raises the odds of a collapse in the property markets, which would be socially destabilizing, and lead to greater risk aversion and volatility globally.
The sharp sell-off in long duration bonds (ticker TLT) has reached the collapsed 130-day complexity that implies a probable and playable rebound. More strategically, long-duration bonds yielding close to 5 percent are an excellent structural investment assuming central banks choose to slay inflation and the cost is a near-term recession. We discuss how to time and how to play the potential rebound.
Investors should book profits on our long Egyptian Treasury bill trade as the outlook for the Egyptian pound has worsened. The position has generated an 11.4% return in US dollar terms since its initiation eight months back.
Hamas’s attack on Israel raises the odds of a wider conflict in the Gulf, which would lead to higher oil prices. Given the response of oil prices Monday, markets appear to be relatively restrained in their assessment of a sharp escalation in prices. However, this is early days in a strategy that is just revealing itself.
Volatility will remain the key dynamic in oil markets in the aftermath of the surprise Hamas attacks against Israel on October 7. The risk of a major oil supply shock has gone up, but meanwhile supply constraints will remain at variance with global growth problems stemming from restrictive monetary policy over the next 12 months. Favor bonds over stocks, large caps over small caps, defense and energy stocks over other cyclicals, and US equities relative to global equities.