Latest from BCA Research

MacroQuant downgraded IT to bearish and upgraded Communication Services to neutral. The model remains bearish on Equities and still favors defensives sectors and Energy.

Older workers have deserted the labour force in the US and the UK, but not so in the Euro area and Japan. The result is that wage inflation is red hot in the US and the UK, but not so in the Euro area and Japan. Hence, the Bank of Japan is right to remain a lone dove, the ECB must pivot from its uber-hawkish stance quite soon, but the Fed and the BoE must not pivot from their uber-hawkish stance too soon. We go through the major investment implications.

Expect the Middle East to create new and unexpected energy supply disruptions on top of the Russian energy shock.

MacroQuant is overweight bonds, underweight equities, and neutral on cash. Within the equity universe, the model is overweight Japan, India, Brazil, the US, and the UK.

China's economy is about to experience demand-driven deflation. The lack of an economic recovery and falling producer prices will depress corporate profits and, hence, share prices. Beijing will allow the yuan to depreciate more to prop up its economy.

The economic outlook continues to deteriorate, geopolitical risks have increased, and every indicator in our recession checklist will flash red by the end of the year. The Fed will keep hiking until monetary policy becomes restrictive. Markets are still too complacent: The risk premium is very low, option prices show no sign of capitulation, and profit estimates remain too optimistic. Emerging markets ex-China equities are starting to look attractive. Not only are they trading at cheap multiples, but their return on equity is at the highest level in decades.

This week’s report examines the state of the global monetary tightening cycle and addresses some frequently asked questions about the Fed’s QT program. New yield curve trades are recommended for the US and German yield curves.

This Fed is a single mandate Fed which won’t consider the job done until inflation reaches a 2% target. Concerns about slowing growth will displace concerns about inflation. Equities will bottom shortly before economic growth bottoms. Until then we recommend a defensive portfolio tilt, and offer a few tactical and strategic ideas for the overweights.

The ECB increased interest rates and announced the start of its balance sheet wind down; yet, markets took the news as a dovish outcome. Are we really getting close to the end of the ECB’s tightening campaign? How asset prices will react?

We remain constructive on the economy and equities in the near term because consumers show no sign of hunkering down, US homeowners are largely impervious to higher mortgage rates and our latest survey of storefront occupancies on Lower Fifth Avenue highlighted some encouraging developments.