Developed Countries
BCA Research’s Foreign Exchange Strategy service is shifting its near-term target for the DXY to 98 from 95. The market is now pricing in that the Fed will raise interest rates much faster, compared to earlier this year. According to the…
The University of Michigan Survey of Consumers revealed that American household sentiment deteriorated in November. The headline index dropped 4.3 points to 67.4 – the lowest since November 2011. The decline was driven by weakness in both current conditions…
The November FOMC meeting minutes released on Wednesday reveal that there is a greater willingness among Fed officials to accelerate the pace of tapering when the current target ends in December. Moreover, San Francisco Fed President Mary Daly’s Wednesday…
US equity breadth measured as the share of stocks trading above their 200-day moving average has collapsed since earlier this year. This development raises the question whether a constructive outlook on US equities is still appropriate. At 21.5x forward…
The US Personal Income and Outlays report for October sent a reassuring message about US household balance sheets. Personal income rose 0.5% m/m and beat expectations of a 0.2% m/m increase. Similarly, personal spending accelerated from 0.6% m/m to 1.3% m/m.…
Germany’s Social Democrats (SPD), Greens, and Free Democrats (FDP) formed a new government with the SPD’s Olaf Scholz replacing Angela Merkel as chancellor. The FDP – whose leader, Christian Lindner, will become the new finance minister – takes a harder line…
Both the current and forward-looking components of the ifo Business Climate Index deteriorated in November, sending a negative signal about German sentiment. The headline series lost 1.2 points and fell to a 9-month low of 96.5 – slightly below expectations.…
The latest CPI and PPI prints at 6.2% and 8.6% respectively, have surprised economists on the upside. Indeed, this level of inflation was unseen in the US for the last forty years. However, there are early signs that input costs inflation is abating, thanks to a resolution of the supply chain bottlenecks and an appreciating dollar. A proxy for the global manufacturing input cost inflation comprises of the Baltic Dry Index, DRAM, coal, and natural gas prices, is showing signs of easing (see chart). The US dollar is putting downward pressure on the price of commodities and also acts as a natural cooler to the global economic activity, helping resolve supply-demand imbalances. Resolution of the supply chain disruptions and falling prices of inputs will offer support for the Industrials sector, which has been languishing on the back of shortages and rising PPI. This thesis supports our structural overweight of the US Industrials and the US Manufacturing Renaissance theme. The rising dollar will support more domestically oriented asset classes and sectors, such as Small Cap (overweight) and Consumer Services industry groups (overweight). Conversely, the strong dollar will become a headwind for the Technology sector which derives 58% of sales from abroad, and whose goods will become more expensive for the overseas buyers. Resolution of the shipping delays may hinder the performance of the Transportation Industry (overweight) which was reaping huge rewards from an outsized demand for shipping. Bottom Line: Inflation will likely head lower over the coming 3-6 months while the dollar is rising. We are monitoring the effects of these macroeconomic developments on the performance of different segments of US equities.
Since the beginning of the year, a confluence of both supply- and demand-side factors contributed to shortages. On the one hand, the pandemic caused demand for goods to surge as consumers shifted their spending patterns away from services during lockdowns.…
According to BCA Research’s US Bond Strategy service, investors should stay overweight spread product in US bond portfolios. Gross corporate leverage has plunged during the past few quarters. This drop explains why there have been so few corporate defaults…