FICC

This week, we articulate what the actions of the three major central banks that met (Fed, ECB and BoE) mean for currency markets. This is within the context of our analysis of the latest data releases in the G10, that allows us to calibrate currency strategy.

Financial markets were taken on a wild ride between Wednesday and Friday of this week, with hugely important monetary policy meetings in the US, euro area and UK along with a rash of economic data. Despite all the news, noise and market volatility, the underlying message for monetary policy and bond yields in the US, euro area and UK is unchanged.

Special Report

Our bullish view on commodity prices is underpinned by demand growth driven by stronger real GDP, led by EM. Threats to this view – i.e., a failed re-opening in China, stronger USD, higher real rates in the US, and continued policy uncertainty – are non-trivial. All the same, we remain bullish industrial commodities and gold.

This US Bond Strategy Insight discusses what we learned from yesterday’s FOMC meeting and press conference, and discusses the implications of the market’s reaction.

Special Report

This week’s Special Report goes over the structural problems facing the UK economy and our outlook for UK gilts and the sterling following turbulent moves in 2022.

Special Report

This week’s Special Report uses our Golden Rule of Bond Investing to forecast US Treasury returns for 2023 under different economic scenarios.

The growing threat of fiscal dominance; lower real interest rates; a weaker USD; increasing aggregate demand in Asia spurred by Chinese stimulus; safe-have demand driven by growing war risk all are bullish for gold. We are lifting our price target to $2,000/oz by year-end (from $1,900/oz) and upgrading our recommendation to a strategic holding.

Fed Governor Lael Brainard delivered an important speech last week in which she laid out the intellectual justification for the Fed to soon pause its rate hike cycle. This week’s report reviews her arguments and explains how they inform our monetary policy and investment views.

Special Report

In Part I of a long-term series on currency valuations, we show that a simple PPP model has a good track record of predicting long-term currency returns (over 3-to-5 years).

China’s re-opening – powered by the fiscal and monetary stimulus required to achieve at least 5% real GDP growth after flattish 2022 growth – and a weaker USD will catalyze demand growth this year and next, lifting global oil consumption by close to 2mm and 1.7mm b/d in 2023 and 2024. We lowered our Brent forecast slightly for this year to $110/bbl, and expect 2024 prices to average $115/bbl. WTI will trade $4-$6/bbl lower.