CoreMacro

The S&P Global flash PMIs released yesterday showed that the contraction in manufacturing activity accelerated on both sides of the Atlantic in September. The forward-looking new orders component fell to a 9-month low of 42.3 in the euro area and a 21-month low of 42.7 in the US.

The September Euro Area Flash PMI release confirms that the region's economic outlook is deteriorating. Manufacturing activity is now fully contracting, and the new orders-to-inventory ratio is deteriorating anew. Services activity is losing some of its shine, especially in France, now that the Olympics are over.

The Central Bank of Brazil (BCB) raised interest rates last week. Is this the commencement of a major tightening cycle that will persist well into next year? Despite this move, we maintain that the BCB will cut interest rates substantially next year. We believe the Lula-nominated board members are playing the long game: voting to hike rates until year-end to establish credibility with financial markets in order to get a pass at easing monetary policy in early 2025.

The Draghi report highlights sensible reforms that would address many of Europe’s productivity shortcomings. Whether European capitals heed Mario Draghi’s advices remains to be seen.

Special Report

In this report, we argue that the Bank of Japan is unlikely to hike interest rates this week, but the relative trajectory of bond yields in Japan is higher. This warrants an underweight position in JGBs and a leveraged bet on a higher yen. The positioning for equity investors is murkier, as progress on corporate reforms is necessary for a rerating in Japanese shares. That is not yet very clear. The bottom line is: Stay long the yen.

The Vietnamese economy is growing at a strong 7%. Why, then, are Vietnamese stocks struggling? Should investors expect a revival soon?

Special Report

This Special Report examines the post-pandemic evolution of consumption growth, relative equity sector and subindustry performance and recent commentary from consumer-facing companies to assess the likelihood that softer spending among lower-income households will spread to middle- and upper-income households.

The US suffers from enough imbalances to produce a mild recession. Unfortunately, such a recession could lead to a significant bear market in stocks, just as it did during the very mild 2001 recession.

The ECB will cut rates once more this year; however, markets underprice how far it will ease next year.

By triggering a renewed surge in the yen, and a disorderly unwinding of the AI bubble, more aggressive rate cutting would guarantee the very recession that the Fed is trying to stave off. This means that underweight short-term US rates or T-bonds combined with underweight US tech is a winning position, one way or another. And we reveal the best way of expressing this.