Latest from BCA Research
Jay Powell won’t be removed as Fed Chair before the expiry of his term next May, but we will learn the identity of his replacement this year, setting up a potentially awkward “shadow Fed Chair” situation.
US equity investors should heed warning signals from US corporate bond yields. There are early red flags for EM share prices. Global trade will shrink in H2 2025. China’s economic tailwinds from H1 2025 – fiscal and export frontloading – are coming to an end.
Euro area and Chinese interest rates must fall much further to prevent monetary policy from becoming ultra-restrictive. But Trump’s attempts to force unwarranted rate cuts from the Fed risks a vicious backlash from the bond vigilantes.
Beijing’s supply-side push faces steeper hurdles than in 2016. With limited demand support and tighter constraints on cutting capacity, today’s reforms are unlikely to pack the same punch.
We discuss the implications of this morning’s CPI report and the relative attractiveness of 2/5 Treasury curve steepeners.
Disinflation continues to unfold globally, and markets are finally catching up. Inflation expectations have broadly realigned with fundamentals, prompting us to shift our global ILB allocation to neutral. While tariff risks are inflating US expectations, pricing in the UK, Japan, and Australia has adjusted sharply. Today’s Strategy Report reviews these developments and updates our country-level ILB positioning.
A potential right-wing government in 2027 will not stabilize the trajectory of the public debt-to-GDP ratio. Unsustainable public debt, a large current account deficit, and a sharp growth slowdown will lead Brazilian markets to underperform EM. Yet, to benefit from a quickly decelerating economy, we recommend receiving 2-year swap rates.
We still believe a recession looms, but it has yet to rear its ugly head. We continue to recommend investors position defensively, but we will change tack if clear signs of a recession don’t emerge soon.
EUR/USD is in a multi-year bull market. A short-term pause is likely, but the longer-term trend remains higher toward 1.25, and eventually 1.40.