CoreMacro

MacroQuant warns that US equities are pricing in very little economic risk. The model is shunning equities and recommends a large overweight to cash.

Global currency markets have entered a new era. This implies that the framework for analyzing exchange rates must also change. We introduce a new framework for analyzing EM currencies and classify them into resilient and vulnerable categories. Finally, we are adding more EM domestic bonds to our portfolio and making many changes to our currency trades.

Rising bond yields may present an even greater danger to the global economy than the trade war. With equity valuations no longer discounting much economic risk, investors should position themselves defensively.

Chinese tourism will continue growing, but investors should be mindful not to overpay for Chinese tourism stocks by extrapolating their past double-digit revenue growth into the future.

Peru’s economic resilience will help its markets outperform their EM peers. Domestic macro fundamentals are robust, and strong external accounts will lead to a stable-to-strengthening currency versus the US dollar. Overweight Peruvian equities, local bonds, and sovereign credit relative to their respective EM benchmarks, and go long 10-year domestic bonds (currency unhedged).

Five questions, five answers from the road. We unpack what Europe’s biggest investors are worried about right now, from trade‑war whiplash to bund‑versus‑Treasury positioning; and where the real opportunities still lie.

Special Report

Trump’s signature bill is surprising to the upside with budget deficits, as predicted. Some version is guaranteed to pass – but higher bond yields and inflation will weigh on the economy and stock market.

Right now, the major stock and bond markets are more ‘anti-fragile’ than fragile, and the Joshi rule recession indicators signal that a US recession is not imminent. This justifies a neutral, or default, tactical weighting to both stocks and bonds until a major market does become fragile, or until recession risk elevates. The one major price trend that is fragile is the 65-day selloff in the US dollar, which justifies a tactical overweighting to the dollar.

Special Report

Europe’s telecoms are cheap just as Brussels moves to tear down barriers and spark cross border consolidation. Read why this blend of high yield, defensive earnings, and a powerful policy catalyst sets the stage for a major sector re rating.

Risk assets rallied hard following the Great Geneva De-escalation, but we are not enamored of risk assets’ risk-reward profile. Forward-looking survey data remain awful on balance and we continue to recommend a defensive asset allocation profile.