Economy

While a September rate increase is still possible, the recent batch of disappointing U.S. economic data, combined with lackluster inflation readings and election uncertainty, suggest that a December hike is much more probable. Similar to last year, risk assets are likely to react negatively to the prospect of further monetary tightening. Stay tactically short global equities and position for a stronger dollar.

Hong Kong's growing political awareness and rising sensitivity to public policy underscores brewing social tensions brought about by decades of <i>Laissez-Faire</i> capitalism. Social policies will likely become progressively more redistributive, with potentially a longer-term negative impact on asset prices.

A common perception is that the euro has been a failure for Italy. We challenge this perception and explain why it is so important for investors, whether it is wrong or right.

Conditions are falling into place for inflation to plunge and monetary easing to progress rapidly. This in combination with structural reforms creates a bullish backdrop for Argentine financial markets. The current economic, structural and political configurations look more promising for Argentina than Brazil. Go long Argentina/ short Brazilian sovereign credit, overweight the Argentine bourse versus the Frontier Markets benchmark and, go long the Argentine Peso versus the Brazilian <i>real</i>.

The August payrolls report did not change our view that a Fed rate hike is likely in December, but not before that.

The dollar is likely to enter the bubbly stage of its bull market within the next 12 months. The key culprit for this move will not be the Fed, but easing by non-U.S. central banks. The euro area economy could enter a temporary soft patch, but this will not result in an imminent easing by the ECB.

The neutral real rate of interest, r*, is likely to remain depressed for the foreseeable future. The Fed is likely to take additional incremental measures to boost long-term inflation expectations, including allowing inflation to overshoot its 2% target more frequently. This should be enough to keep long-term Treasury yields on a gradual upward trajectory.

We reveal what our most-trusted leading indicators are predicting about the major economies, and end with a provocative conclusion.