Mega temas
Some thoughts on this morning’s CPI report and its implications for the Fed and Treasury yields.
In most developed economies, rising inflation expectations will lift them further above the 2 percent target, limiting the scope for further interest rate cuts. But in Japan, rising inflation expectations will lift them up to the BoJ’s 2 percent target, removing the BoJ’s justification for its zero-interest rate policy. The normalisation of Japan’s monetary policy poses a big structural risk to stocks because Japan has been the main source of financial market liquidity, and thereby, of rising stock market valuations. From a timing perspective though, wait until the complexities of the price trends in USD/JPY and/or Nasdaq versus 30-year T-bond have collapsed. Plus: go tactically long copper.
This week we conduct a thorough audit of our open positions by revisiting the original basis and subsequent performance of all 13 cyclical recommendations. Following the review, we recommend closing 6 of the 13 positions.
We spent last week visiting our clients in China. In this report, we share some of the key questions from the client meetings as well as our responses.