Latest from BCA Research

The market does not grasp the implied depths of recessions that will be needed to prevent inflation expectations from un-anchoring. Among the major economies, the most vulnerable to a deep recession is the UK. We explain why, and some investment implications. Plus: the yen is a rebound candidate, while Japanese equities are a reversal candidate.

Special Report

This week’s Special Report updates our US default rate forecast and considers whether corporate bond spreads offer value given the trend in credit fundamentals. We also consider the relative value proposition between investment grade and high-yield credit and between European and US corporate bonds.

Momentum, high cash balances, FOMO, and expectations of soft landing drive the market higher. This rally may continue for a while, but macroeconomic headwinds are intensifying and will eventually derail the rally. It is too early to celebrate victory.

Special Report

The Russian mutiny reveals the underlying trend of domestic instability. Russian instability is negative for global stability. The endgame of the war in Ukraine is exacerbating the problem, likely pushing up the equity risk premium.

The attempted coup in Russia produced subdued short-covering rallies in oil, gas, and grains markets, as markets over time have observed that coups, rarely result in loss of production and exports. Markets await Putin’s next move. Unless and until a viable threat to the Putin government emerges, markets will continue pricing in fundamentals prevailing prior to Saturday’s attempted coup. We are keeping our base case brent and henry hub natgas price expectations unchanged.

Bank Credit Analyst

The Russian mutiny reveals the underlying trend of domestic instability. Russian instability is negative for global stability. The endgame of the war in Ukraine is exacerbating the problem, likely pushing up the equity risk premium.

Find out the latest updates of our CMVI and Rotation Maps equity frameworks.

The Bank of England delivered another outsized rate hike this week, as the central bank remains focused on overshooting inflation and not the weakening economy. The BoE now knows that it must push the UK into a deep recession to cool off inflation, which should now be considered the base case scenario for the next 6-12 months. A major cyclical buying opportunity for UK Gilts is approaching for patient investors.

Assuming yesterday’s policy rate hike is a sign that Turkey is finally veering towards orthodox economic policies; should investors rush in?

Machine learning has made significant progress in the physical sciences, although it has some ways to go in the social sciences. When asked to make predictions on oil markets, ChatGPT's responses lack in-depth analysis given its inability to understand the language and think critically. While in its current form, AI cannot replace forecasters, its wide breadth of 'knowledge' makes it useful in developing forecasting frameworks in unfamiliar domains.