Latest from BCA Research
The Irkutsk plague scare is not yet a crisis, but if it becomes one, Russia is a bad place for it to happen.
Our G10 FX cyclical scorecard still favors high-carry currencies over low yielders, suggesting patience should continue to pay. We break down the factors driving each currency and highlight the most appealing relative-value opportunities.
Long-dated bond yields rose another 48 bps since our last missive, quite a move in just a month. And yet, equities have remained resilient. This suggests that the move in bond yields is due to sanguine economic forces, not fiscal profligacy or inflation fears. In addition, the war in Iran is subsiding, partly because the Fed itself has conspired against it. Will President Trump restart the conflict regardless? Perhaps, however, the constraints are mounting against the White House foreign policy. We remain bullish on equities and reaffirm our view that investors with a long-term horizon should be nibbling at the current level of yields. To make sure that our bearish clients are happy, we pivot to the risk of higher tax rates in the US. Specifically, we try to answer the question of when markets price higher tax rates.
The most bullish development for Brazil from the weekend’s elections was not the higher odds of a right-wing presidency, but the likely president’s (Flávio Bolsonaro) stronghold in Congress. Upgrade Brazilian fixed-income markets to overweight and equities to neutral within their respective EM portfolios.
A narrow, tech-led rally left USHQ trailing its benchmark despite positive returns to the BCA Score. USHQ SMID lagged more modestly, with lower risk.
Forced selling may be approaching a pause, but France’s fiscal and political adjustment has barely begun. Maintain an underweight in OATs and use relief rallies to reduce exposure. Contained contagion is reassuring for Europe; it is not a buy signal for France.
As the 10-year yield surged in September, the S&P 500 slipped but only by 0.3%, supported by Technology and Communication Services. We see upside into year end, with bond yields remaining the key risk.
Rising rates don’t halt bull markets but real yields exceeding the economy’s potential long-run growth rate could. That relative level could lead to a stock-bond collision if it persisted long enough to slow the economy.
This morning’s jobs report serves to underscore that the labor market is not a source of inflationary pressure and therefore of second-order importance when it comes to the Fed’s near-term decision making.