CoreMacro
BCA’s flagship global macro and investment strategy platform, helping investors anticipate regime shifts, connect signals across regions and asset classes, and navigate the world’s most difficult macro questions.
President Tsai's inauguration is unlikely to spark an immediate confrontation with the mainland, but heightened political uncertainty is a certainty, and some of the economic benefits that Taiwan gained in recent years from warming ties with China are set to unwind. Remain cautious on Taiwanese equities.
There is a considerable dichotomy between the EM equity universe and EM corporate credit markets. EM credit markets remain mispriced. EM currencies are at risk of renewed depreciation. This will push sovereign and corporate spreads, as well as high-yielding domestic bond yields, higher. Continue underweighting Indonesian stocks, sovereign credit and domestic bonds within their respective benchmarks.
The next rate hike is unlikely before September, despite the rebound in April retail sales. The dollar could suffer for a time, but the long-term bull market is intact.
Helicopter money is coming, and once deployed, will prove to be much more successful than most people imagine. Stay long Japanese and German inflation swaps. USD/JPY and EUR/USD are ultimately likely to reach 140 and 0.9, respectively, over the next two years. The U.S. economy will remain resilient enough to make helicopter money unnecessary but a strengthening dollar will greatly curtail the ability of the Fed to raise rates. Investors should overweight Treasurys relative to bunds and JGBs. Helicopter money will benefit gold as well as the beleaguered European and Japanese stock markets.
Approaching the referendum on EU membership, what are the prospects for the U.K. economy and financial markets?
The Chinese corporate sector has been reluctant to expand, focusing instead on destocking inventory and hoarding cash. This protects the corporate sector balance sheet, but is not conducive for strong GDP expansion. Q1 earnings reports confirm that an upturn in the Chinese profit cycle is unfolding.
China's underlying final demand for crude and oil products (excluding changes in inventories) has been weaker than is suggested by its imports of crude oil. The government has used lower oil prices to accumulate strategic petroleum reserves (SPR). Commodities prices are at a risk from weaker China/EM demand going forward.
We continue to view the rally in equities and high-yield corporate bonds since February as a high-risk affair.