Latest from BCA Research

With easing inflation, Singapore’s domestic liquidity is set to improve meaningfully. Put this bourse on an upgrade watch list. A new trade: go overweight Singapore domestic bonds relative to EM.

Global oil demand growth is tracking with our estimate of ~ 1.8mm b/d for this year. Supply discipline is being maintained by OPEC 2.0, where the core (KSA and the UAE) and Russia have reduced production by ~ 240k b/d yoy in 1H23. In addition, KSA extended its unilateral production cut of 1mm b/d from July into August. We expect inventory draws in 2H23 as supply stays below demand. Our Brent forecast remains unchanged at $92/bbl this year, and $120/bbl next year. We remain long the COMT and XOP ETFs.

Falling inflation enables central banks to pause rate hikes, which is good news. But time goes on. Restrictive monetary policy, Chinese debt-deflation, energy supply shocks, US and global policy uncertainty, and extreme geopolitical risks will undermine hopes of a soft landing and beautiful disinflation.

An outlook for inflation and Fed policy following this morning’s CPI report.

The stratospheric valuation of this year’s AI mania is likely to deflate, just as it did after the Web 1.0 mania of the late 90s. We go through some long-term and short-term investment implications.

The Politburo meeting in late July will set the course for economic policy for 2H23. We think China will only resort to "irrigation-style" stimulus if something breaks in the economy and/or financial markets. Furthermore, the gradual and targeted rounds of stimulus are unlikely to boost economic activity considerably. The reasons are the diminished efficacy of the monetary transmission mechanism and the unique features and constraints of the nation’s fiscal system.

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

Special Report

We build a four-stage business cycle framework based on economic growth and capacity utilization, and then analyze historical returns for most major asset allocation decisions for each stage. Given that we are in the early recession stage (negative growth coupled and an overheated economy), our framework recommends a defensive positioning across all asset classes.

Positive economic surprises have delayed the onset of recession in the United States. But tighter monetary and fiscal policy, slowing global growth, and a looming rebound in policy uncertainty and geopolitical risk suggest that investors should buy insurance while it is cheap.

A perspective on the recent increase in US bond yields and this morning’s employment report.