Latest from BCA Research
Forecast is diverging from strategy for equities. Intermediate-term positives allow for a blowoff to the upside. But we do not expect the rally to have staying power over a 6-12 month horizon.
Over the past 12 months, the yen surged, powered by global deflationary fears. Japanese monetary conditions massively tightened, causing additional yen strength, creating a vicious circle. Policymakers will respond, but markets are likely to be disappointed. Nonetheless, global factors could temporarily move against the yen. Buy NOK/JPY and AUD/JPY. The BoE will move next month. The BoC will stand pat for the foreseeable future.
The perception that central banks have turned even more dovish has pushed down global bond yields, while also giving stocks a lift. Looking out, bond yields are likely to edge higher as investors begin to focus more on the outcome of easing measures: Higher inflation. As long as yields rise gingerly and in the context of firming economic growth, global equities will remain reasonably well supported. Equity investors should favor the euro area, Japan, and China.
Commodity speculation provides liquidity to hedgers, allows price discovery, and offers access to an asset class that typically produces returns that are not correlated with stock or bond returns.
Given that the seemingly unthinkable can actually happen, we reassess how financial markets price uncertainty, and whether the current pricing is correct.
