CoreMacro | Global

Special Report

AI could be as transformative as the Agricultural or Industrial Revolutions. However, the fact that you are reading these words at the dawn of the AI age hints at a darker possibility, which is that AI will lead to humanity's demise. Fortunately, the most straightforward interpretation of quantum mechanics suggest you will only be conscious in those timelines where the world survives.

US stocks and bonds are on a collision course. Only a meaningful equity selloff is likely to pull bond yields considerably lower. Global equity risk-reward looks poor. The dollar will stay firm near term, but its medium- and long-term outlook remains bearish.

Special Report

The US-China trade truce is getting bigger and better, but a grand strategic bargain on Iran and Taiwan is not happening.

Special Report

A market becomes inefficient, illiquid, and vulnerable to a phase transition when the ‘wisdom of crowds’ switches to the ‘madness of crowds.’ This switch from market wisdom to market madness may be the most significant recurring behavioural opportunity in active fund management and can be exploited in real-time by measuring the market’s complexity.

The global economy has weathered the oil shock reasonably well so far. However, the risk of a recession will increase meaningfully if the Strait of Hormuz remains closed into June.

Central banks remain on hold amid heightened uncertainty. We rely on BCA’s Central Bank Monitors to assess the current policy stance of major central banks, and highlight the tactical opportunities across bond markets and currencies.

Global trade has held up despite US non-AI import volumes contracting by 25% over the past 12 months. The strength in global trade has concentrated in two areas: (1) imports of AI-related hardware and (2) developing countries’ imports, especially from China. Will these continue?

Most of the increase in S&P 500 earnings estimates this year has stemmed from shortages. The oil shortage, which has pushed up estimates for energy companies, will fade once the military conflict is resolved. However, the shortage of semiconductors and other AI paraphernalia could persist for a while longer. As such, we are moving our recommended 12-month equity allocation from a slight underweight to neutral. We are already neutral on a 3-month horizon.

We do not expect the oil shock to have a lasting effect on inflation. Looking further out, a variety of structural forces will influence inflation, including fiscal policy, globalization, demographics, and AI.

Special Report

In this Special Report, we describe how inflation expectations are formed. We then demonstrate that steady state inflation expectations have un-anchored in the UK, are un-anchoring in Japan, and are at high risk of un-anchoring in the US. And we conclude with some implications for bond markets.