Global
For the month of February, the model underperformed both global and U.S. equities. For March, the model has modestly pared back its equity risk exposure, shifting the allocation into bonds. While Europe remains the largest equity overweight, EM and Canada also received some allocation. The U.S. and New Zealand were slightly downgraded. In the fixed-income space, the model is sticking with Italy and Spain.
We are introducing a new set of fair value models for currencies. On a cyclical basis, the dollar is expensive. However, this is not enough of a reason to expect an imminent fall in the greenback. The yen is extremely cheap, and its fair value is rising on the back of a positive terms-of-trade shock. The yuan is fairly valued. Most commodity currencies are not yet cheap.
The remarkable admission by OPEC's secretary-general, Salem el-Badri, earlier this week that with "any increase in (oil's) price, shale will come immediately and cover any reduction" in output only hints at the larger impact of light-tight-oil (LTO) going forward.
This month's Special Report reviews the main factors driving the "lower for longer" bond yield view. A key finding is that the demographically-driven portion of the expansion in world capital spending has come to a virtual standstill, representing a major hit to underlying demand growth.
This month's Special Report reviews the main factors driving the "lower for longer" bond yield view. A key finding is that the demographically-driven portion of the expansion in world capital spending has come to a virtual standstill, representing a major hit to underlying demand growth.
The deeply negative momentum in oil prices is fading, setting up the possibility of a counter-trend rebound in global inflation expectations and perhaps even the beaten-up U.S. High-Yield bond market.
Markets see long-term global growth prospects as having deteriorated materially, with policymakers unwilling or unable to do much about it. Meanwhile, recent economic data - U.S. notably - hasn't been that bad. A divergence between what matters to Wall Street versus Main Street explains the disconnect. Accelerating wage growth, lower commodity prices, and cheaper rates are positives for households - but not for many Wall Street sectors. Stay neutral global equities. T-bonds are a "hold" for now. The dollar's selloff is overdone.