Equities

Favor US and Southeast Asian stocks over global stocks. Stay underweight China, Hong Kong, and Taiwan.

The September CPI report was disappointing, but we still see several signs pointing to a rapid decline in inflation. Our constructive near-term view on stocks and the economy remains intact.

The kinked Phillips curve not only explains why inflation surged last year but makes a number of surprising predictions, chief of which is that inflation could fall significantly over the coming months without a major increase in the unemployment rate. In the near term, that is bullish for stocks.

BCA’s Emerging Markets Strategy team’s view remains that US inflation will prove to be sticky. That said, in this report, we examine under what conditions a considerable drop in US core inflation, whenever it transpires, would be bullish for stocks. Potentially significant US disinflation would be bullish for stocks if it is due to an improvement in supply-side dynamics, but bearish if it is demand driven.

Is the BoE’s emergency intervention in its bond market a British idiosyncrasy that global investors can ignore? No, the UK’s near death experience sends three salutary warnings, with implications for all investors.

Sentiment toward stocks is depressed and European valuations have declined substantially. However, the earnings outlook remains poor. Which side will win?