Latest from BCA Research
High US inflation is being driven by tariffs, not domestic inflationary pressure. This argues for Fed easing and a bull-steepening of the Treasury curve.
Russia’s recalcitrance will probably trigger a near-term global stock market correction by prompting larger sanctions and derailing US-China talks. But Israel’s actions do not raise our odds of a major oil shock.
For the next few months at least, inflation risk trumps recession risk for both US markets and world markets. This because, correctly gauged, the US jobs market is still supply-constrained with ‘jobs looking for a worker’ exceeding ‘workers looking for a job’ by 0.4 percent. A still supply-constrained US jobs market cannot enter a demand-driven recession until it flips back to demand-constrained, so bond investors should underweight duration. Plus: a new tactical trade is overweight India (INDA).
Core Europe’s industrial sector will relapse in the coming months due to US tariffs and a strong euro. Investors can play the imminent deflationary shock by being long Central European bonds. They should, however, hedge the currency risk vis-à-vis the euro.
USD-denominated Emerging Market bonds have been outperforming US corporates for the past year. We don’t think the rally is exhausted yet.
Silver, platinum, and palladium may ride the same cyclical tailwinds as gold in the coming months. However, four key risks threaten their relative performance versus the yellow metal.
The equity bull market continues, as we have been expecting. The bears are over-indexed on the unorthodox policies of the Trump administration, failing to understand that those policies are negative for the USD, which is itself positive for stocks. Yes, a recession could befall the markets over the next two quarters. However, households are extremely de-levered. As such, as long as borrowing rates continue to fall, consumption could be held up by the transition from the cash-driven economy to a leverage-driven one.
The Buenos Aires election results are a setback for the government's political momentum, but not the endgame. Our long-term bullish view remains in place, but short-term investors should stay on the sidelines in the near run.
The European Central Bank has achieved a soft landing. Inflation is back to target, with well-anchored inflation expectations. The unemployment rate is historically low, and real economic growth is stable, albeit weak. Given that little to no additional easing will come from the ECB, investors should underweight government bonds relative to equities.
The economy is slowing, but not collapsing, and monetary easing is imminent — a backdrop that will benefit equities. We remain strategically bullish, with a close eye on GenAI and resilient earnings, even amid numerous risks. However, we are tactically cautious, as seasonality, elevated valuations, and stretched technicals present near-term headwinds.