Currencies
Following the October US jobs data, the ‘Joshi rule’ real-time US recession indicator increased from 0.11 to 0.15, meaning that it is fast approaching its event horizon of 0.20. We go through the investment implications. We also highlight a new long-term recommendation. Plus, the Norwegian krone is close to a potential rebound.
In financial systems, cracks typically begin on the periphery and then expand to the center. Hence, the ruptures on the fringes often act as an early warning. These fissures tend to widen and spread to the core, causing a breakdown in the S&P 500. Investors should consider buying US Treasurys aggressively when the S&P 500 slips below 4,000.
The fundamental component of long-term inflation expectations has climbed to its highest level since 2008 in both the US and the euro area. This means that both the Fed and the ECB will need to engineer inflation to undershoot 2 percent for an extended period if they are to maintain their 2 percent inflation targets. We explain what this means for investment strategy over the coming 6-12 months. Plus, we pinpoint what to focus on in this Friday’s US jobs report. And we identify food and beverages (PBJ) and the Indonesian rupiah (IDR/USD) as excellent rebound candidates.
High interest rates will eventually cause growth to slow. Signs of stress are already starting to show. Stay cautiously positioned.