経済成長

Highlights Our leading gauges of EM commodity-demand growth indicate global industrial-commodity demand has troughed and will be moving higher in the wake of supportive global financial conditions. The magnitude and speed of any commodity-demand rebound hinges on the joint evolution of the USD, which remains close to record highs, and global economic policy uncertainty. Reduced policy uncertainty will translate to a weaker USD, which, all else equal, will be bullish for commodity demand. Chinese economic stimulus remains weak, suggesting policymakers are holding off deploying aggressive fiscal and monetary policy until later this year or next year. Policy risk remains the chief threat to a robust recovery of industrial-commodity demand globally. A ceasefire in the Sino-US trade war will not resolve deeper trade and security issues, which means global financial easing must offset still-pronounced economic uncertainty that is keeping the USD well bid. If policy uncertainty remains high, it will continue to be a headwind for commodity-demand growth.  Feature EM GDP growth is showing signs of accelerating, based on our EM Commodity-Demand Nowcast model. This will translate to higher commodity demand in coming months (Chart of the Week). Our EM Commodity-Demand Nowcast is a coincident indicator of commodity demand, comprised of our Global Industrial Activity (GIA) Index, and our Global Commodity Factor (GCF) and EM Import Volume (EMIV) models (Chart 2). The GIA index uses trade data, FX rates, manufacturing data, and Chinese industrial activity statistics to gauge current global industrial activity, which is highly correlated with trade-related activity. The GCF uses principal component analysis to distill the primary driver of 28 different commodity prices traded globally. Lastly, the EMIV model is driven by EM import volumes reported with a two-month lag by the CPB in the Netherlands, which we update to current time using FX rates for trade-sensitive currencies, commodity prices and interest rates variables. Chart of the WeekEM Commodity-Demand Nowcast Hooking Up Chart 2BCA EM Commodity-Demand Nowcast Components Show Growth Resuming Globally We expect the recovery in global economic growth to reduce the marginal impact of the global policy uncertainty on the USD, and on oil demand. Our EM Commodity-Demand Nowcast is strongly correlated with y/y growth in nominal EM GDP and non-OECD oil consumption. Its improvement supports our view oil demand will continue to strengthen, particularly next year, when we expect growth to average 1.4mm b/d. We expect the recovery in global economic growth to reduce the marginal impact of the global policy uncertainty on the USD, and on oil demand.1 As demand strengthens – and recession fears subside – economic policy uncertainty’s contribution to safe-haven demand for the USD will diminish. This means economic growth will once again be the main driver of cyclical commodity demand growth. The GIA component of our Nowcast is sensitive to real activity in China, which is the largest consumer of base metals, iron ore and steel. Here, it is instructive to see the components other than manufacturing appear to have bottomed, which, at the margin, should be supportive of base metals, iron ore and steel products (Chart 3). The China Economy Component of the index has hooked higher last month, but it still is lagging. This suggests policymakers are holding off on deploying fiscal and monetary stimulus aggressively for now. We expect this will change by 1H20, if organic growth fails to materialize.2 Chart 3BCA GIA Index Components Point Toward Demand Growth Global Financial Conditions Support Commodity Demand For the better part of this year, systemically important central banks globally have been running accommodative monetary policies. With this week’s rate cut, the Fed now has lowered rates three times this year, and the ECB is preparing to roll out QE once again. We expect monetary policy to continue to support a revival of industrial-commodity demand (Chart 4). The easing of global financial conditions has been a pillar of our view. The easing of global financial conditions has been a pillar of our view that globally accommodative monetary policy will reverse the damage done to global commodity demand growth by the Fed’s rates-normalization policy last year and China’s deleveraging campaign of 2017-18. Financial markets have responded to this stimulus, as our colleague Rob Robis points out in this week’s Global Fixed Income Strategy.3 Global equity markets have moved 10% higher y/y, as financial conditions ease (Chart 5): Chart 4Global Financial Conditions Remain Supportive For Commodities Chart 5Global Equities, LEIs Move Higher “Equity prices are an excellent leading indicator of global growth, while bond yields typically reflect current economic conditions. … We see no reason to discount the positive message on growth from rallying equity markets, especially when confirmed by an improvement in our global leading economic indicator (LEI), led by the more cyclical emerging market (EM) countries.” (Chart 6). The real economy also is responding to stimulative global financial conditions, as EM manufacturing activity indicates. EM manufacturing is outpacing activity in DM markets (Chart 7). This is bullish for trade volumes and EM income growth, which will, all else equal, be supportive of industrial-commodity demand (Chart 8). Chart 6EM Equity, FX Markets Strengthen Chart 7EM Manufacturing Outperforms DM Chart 8EM Manufacturing Correlates With Trade Growth Economic Policy Uncertainty Continues To Dog Growth As promising as these indications of a revival in commodity demand may be, global economic policy uncertainty – particularly as regards the Sino-US trade war and trade in general – will remain a hindrance to reviving commodity demand. We have shown that global economic uncertainty stifles oil-demand growth, and commodity demand generally.4These policy risks are exogenous to the commodity markets and are, therefore, very difficult to hedge. While we expect economic uncertainty globally to decline, it will not completely evaporate. It will remain elevated vs. its historical average, despite the decline from its recent record-high level. Presently, commodity markets are positively discounting the likely “phase one” trade deal expected to be agreed between Presidents Trump and Xi Jinping. We expect this to reduce economic uncertainty and weaken the USD, at the margin. In addition, as our colleague Matt Gertken notes in last week’s Geopolitical Strategy, other sources of uncertainty – particularly a disorderly Brexit – also are being addressed: “Not only are U.S.-China relations slightly thawing, but also the risk of the U.K. leaving the EU without a withdrawal agreement has collapsed. This will reinforce Europe’s underlying political stability despite the manufacturing recession and help create a drop in global uncertainty.”5 Still, while we expect economic uncertainty globally to decline, it will not completely evaporate. It will remain elevated vs. its historical average, despite the decline from its recent record-high level. Consequently, monetary policy will have to remain accommodative in order for the momentum in global growth – mainly in EM economies – to increase and reach the threshold where fears of recession dissipate, a necessary condition required to reduce the correlation between global economic policy uncertainty and the USD. For the USD to no longer be a headwind to commodity-demand growth, monetary policy globally will be forced to offset the remaining, lingering economic policy uncertainty that is keeping the USD well bid.  There still are significant risks going into 2020, as our geopolitical strategists note: “Uncertainty will remain elevated beyond the fourth quarter, however, for two main reasons. First, US uncertainty will rise, not fall, as a result of the impending 2020 election. Second, the trade ceasefire is highly unlikely to resolve the slate of disagreements and underlying strategic distrust plaguing U.S.-China relations. This will cap the rebound we expect in global business sentiment.” So, while uncertainty will fall as President Trump retreats from his previously intransigent trade position vis-à-vis China, its diminution will be limited. All the same, the chances markets will return to the status quo ante are close to zero. This means that for the USD to no longer be a headwind to commodity-demand growth, monetary policy globally will be forced to offset the remaining, lingering economic policy uncertainty that is keeping the USD well bid. So far, it would appear this is happening, given the improvement in global financial conditions currently visible in the data. However, it is not a given this will continue, and markets will be forced to keep a weather eye on these conditions going forward. Bottom Line: Global financial conditions are easing significantly and propelling financial markets higher, particularly global equity markets. We expect the real economy – i.e., commodity markets – also will benefit from monetary accommodation and that aggregate demand will lift as EM income growth improves. This likely will put downward pressure on the USD. Importantly, if the divergence between EM and DM increases, it could offset the impact of global economic policy uncertainty’s impact on the USD and reduce the demand for dollars. We continue to expect oil demand to be supported by monetary accommodation globally and fiscal stimulus as 2019 winds down and into 2020. We also expect real interest rates will remain soft, as central banks try to keep financial conditions loose enough to encourage risk taking and investment. This will continue to support demand for industrial commodities, particularly oil and base metals.   Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Hugo Bélanger Senior Analyst Commodity & Energy Strategy HugoB@bcaresearch.com   Market Round-Up NB: This week we are adopting a new format and moving our short summaries of other commodity markets to the back of our Weekly Report, which will align our layout with BCA Research’s new look. Energy: Overweight. Saudi Aramco is set to IPO November 3, 2019, according to Reuters. The company is looking at a float of 1 – 2% on the Tadawal, which could be the largest IPO in history.6 Separately, the Trump administration renewed Chevron’s waiver to operate in Venezuela for three months last week. Chevron produces ~ 47k b/d in Venezuela. Sanctions waivers for Halliburton, Schlumberger, Baker Hughes and Weatherford International also were renewed.7 Base Metals: Neutral. LME nickel closed close to 12% below the five-year high registered September 2, following the announcement of an immediate ban in exports of nickel ore from Indonesia on Monday. Although LME nickel stocks are at an 11-year low refined nickel production is expected to rise 4.5% next year to 2.5mm MT, according to MB Fastmarkets. Precious Metals: Neutral. Gold traded sideways going into this week’s FOMC meeting. We remain long gold as a portfolio hedge, and continue to expect it to move higher as 4Q19 progresses. Ags/Softs: Underweight. Grains remain lackluster, despite President Trump's expectations of cementing his “phase one deal” with Chinese President Xi Jinping, which will open the way for China to purchase some $40-$50 billion worth of US ag products. Footnotes 1 We discuss the impact of global economic policy uncertainty on oil prices at length in Policy Uncertainty Lifts USD, Stifles Global Oil Demand Growth, which we published October 17, 2019.  2 Our China Investment Strategy team cautions investors to wait for “hard data” to confirm recent indications the economy has bottomed and will be moving toward stronger growth.  Please see our China Macro And Market Review published October 2, 2019.  It is available at cis.bcaresearch.com. 3 Please see Big Mo(mentum) Is Turning Positive, published by BCA Research’s Global Fixed Income Strategy October 29, 2019.  It is available at gfis.bacresearch.com. 4 Please see Policy Uncertainty Lifts USD, Stifles Global Oil Demand Growth, which we published October 17, 2019, for more detail on the transmission mechanism from global economic uncertainty to the USD to commodity demand.  Briefly, as uncertainty increases safe-haven demand for the USD increases.  This stifles demand growth for commodities generally, because it increases the local-currency costs of commodities ex-US. 5 Please see Is China Afraid Of The Big Bad Warren?, a Special Report published by BCA Research’s Geopolitical Strategy October 25, 2019.  It is available at gps.bcaresearch.com. 6 Please see Saudi Aramco aims to begin planned IPO on Nov. 3: sources published by reuters.com on October 29, 2019. 7 Please see US Extends Chevron's Venezuela waiver published by Argus Media’s argusmedia.com service October 21, 2019. Investment Views and Themes Strategic Recommendations Tactical Trades TRADE RECOMMENDATION PERFORMANCE IN 2019 Q3 Commodity Prices and Plays Reference Table Trades Closed in Summary Of Trades Closed In 2018 Summary Of Trades Closed In 2017 Summary Of Trades Closed In 2016

Highlights Declining uncertainty over policy, stabilizing growth in China and improvements in international liquidity, all will allow global economic activity to pick up in the months ahead. A weak dollar will reinforce this positive economic outlook; investors should favor pro-cyclical currencies such as the AUD, NZD and SEK. Bond yields will rise and stocks will outperform bonds on a 12- to 18-month basis. Cyclical stocks are more attractive than defensives. European stocks will outperform U.S. equities and European financials will shine. Copper is a promising buy; stay long the silver-to-gold ratio. Feature The outlook for risk assets and bond yields hinges on global economic activity. The S&P 500 has hit a new high, but our BCA Equity Scorecard Indicator remains non-committal towards stocks (Chart I-1). If global economic activity improves, the Scorecard will begin to flash a clear buy signal, but if growth deteriorates, the indicator will point towards sell. Chart I-1Stocks Could Go Either Way Cautious optimism is in order. Politics, China, liquidity conditions and the dollar collectively will determine the global economic outlook. The liquidity backdrop has significantly improved, political uncertainty should recede and China will morph from a headwind to a modest tailwind. A weak dollar will indicate that the world is healing, and also will ease global financial conditions which will facilitate economic strength. We remain committed to a positive stance on equities on a 12- to 18-month horizon, and recommend below-benchmark duration in fixed-income portfolios. Cyclicals should outperform defensives, European banks offer an attractive tactical buying opportunity and European equities will outperform their U.S. counterparts. Heightened Risks… Chart I-2Risks To The Economy And Stocks Many domestic indicators overstate the intrinsic fragility in the U.S. The Duncan LEI, which is the ratio of consumer durable spending and residential and business investment to final sales, has flattened. Therefore, the S&P 500 looks vulnerable and real GDP may contract (Chart I-2). CEO confidence and small business capex intentions warn of a looming retrenchment in household income (Chart I-2, bottom two panels). If consumer spending weakens, then a recession will be unavoidable. As worrisome as these indicators may be, we previously discussed that the major debt imbalances that often precede U.S. recessions are absent,1 the rebound in housing starts and homebuilding confidence is inconsistent with a restrictive monetary stance,2 and pipeline inflationary pressures are absent.3 Instead, business confidence and the Duncan LEI have been eroded by heightened political uncertainty and weak global manufacturing and trade. … Meet Receding Policy Uncertainty … The two biggest sources of policy uncertainty affecting markets, the Sino-U.S. trade war and Brexit, are diminishing. However, the U.S. election will continue to lurk in the background. Chart I-3Weaker Brexit Support = No Hard Brexit Support Brexit Westminster and Britain’s Supreme Court have rebuked U.K. Prime Minister Boris Johnson’s threat of a “No-Deal” Brexit. Moreover, parliamentary support for his latest plan, which essentially keeps Northern Ireland’s economy within the EU, indicates that the probability of a “No-Deal” Brexit has collapsed to less than 5%. This assessment is reinforced by the delay of Brexit to January 31, 2020. An election is scheduled for December 12 and the chance of a new referendum to vet the deal is escalating. According to Matt Gertken, BCA’s Geopolitical Strategist, an election does not increase the risk of a hard Brexit. Meanwhile, support for Brexit is near its lowest point since the June 2016 referendum (Chart I-3). Thus, a new plebiscite would not favor a “No Deal” Brexit. Sino-U.S. Trade War Chart I-4Why The Trade-War Ceasefire? The trade war truce will also greatly diminish economic uncertainty. Uncertainty created by the China-U.S. conflict accentuated the collapse in business confidence and capex intentions. The “phase one deal” announced earlier this month will likely materialize. The White House’s tactical retreat on trade is tied to U.S. President Donald Trump’s desire for a second term. He cannot risk inflicting further economic pain on his base of constituents.  Weekly earnings are decreasing for workers in swing states located in the industrial rust belt, especially in those areas that Trump carried in 2016 (Chart I-4). Those swing states are most affected by the slowdown in the global manufacturing and trade sectors. Beijing is also motivated to agree to truce due to its soft economy and deflationary pressures. An easing in trade uncertainty will be positive for the domestic economy. China’s willingness to replace Carrie Lam, the embattled Chief Executive of Hong Kong, and to withdraw the extradition bill at the heart of the protests confirms its eagerness to come to an agreement with the U.S. China’s readiness to make a deal is also made evident by its increasing imports of U.S. agricultural products (Chart I-4, bottom panel). Ultimately, the U.S. will not implement tariffs in December on $160 billion of Chinese shipments. Consequently, investors and businesses should become less concerned about the chances of a worsening trade war. Moreover, chances are growing of a decrease (but not a complete annulation) of the previously imposed U.S. tariffs on China. … And A Q1 2020 Acceleration In Global Growth Global economic activity will improve in Q1 2020 because the drag from China will dissipate and global liquidity conditions will improve. Many activity indicators increasingly reflect these fundamental supports. China China’s economy has reached a new low point: Q3 annual GDP growth is at a 27-year low of 6%, capital spending is weak, industrial production and profits show little life, the labor market is soft, and imports and exports continue to contract. However, a turn in policy has materialized, which will protect the domestic economy. Moreover, this summer’s Politburo and State Council statements showed an increased willingness to reflate the economy. The global economy will accelerate in Q1 2020. Credit creation has stabilized and monetary conditions have eased (Chart I-5). Faced with producer price inflation of -1.2% and employment PMIs of 47.3 and 48.2 in the manufacturing and non-manufacturing sectors, respectively, authorities have allowed the credit impulse to improve to 26% of GDP from a low of 23.8%. In accordance with this new policy direction, the drag from the shadow banking system’s contraction will slow considerably, thanks to a stabilization in both the growth rate of deposits of non-depository financial institutions and the issuance of bonds by small financial institutions. Additionally, the emission of local government bonds will accelerate. Beijing has also meaningfully eased fiscal policy, which is its preferred reflationary tool. Policymakers have cut taxes by 2.8% of GDP in the past two years. The marginal propensity of households to consume is trying to bottom (Chart I-5, bottom). If history is a guide, the acceleration in the rate of change of public-sector capex will fuel this turnaround in China’s marginal propensity to consume, and push up BCA’s China Activity Indicator (Chart I-6). Chart I-5Overlooked Chinese Improvements Chart I-6Public Investment Matters   Chart I-7A Bottom In Chinese Exports Growth? China’s economy is unlikely to bounce back as violently as in 2009, 2012 or 2016. Authorities are much more circumspect in their use of credit to reflate the economy than they were previously. Moreover, the regulatory environment will prevent a boom in the shadow banking system. Nonetheless, the fiscal push and the end of the decline in aggregate credit growth will allow the Chinese economy to stabilize and maybe pick up a bit. Therefore, China will move from a large headwind to a slight tailwind for global activity (Chart I-7, top panel). Mounting public capex also points toward a modest global recovery (Chart I-7, middle panel). Finally, the upturn in our Chinese reflation indicator, which incorporates both fiscal and monetary policy, points to a re-acceleration in U.S. capex intentions (Chart I-7, bottom panel). Global Liquidity Global liquidity conditions continue to improve and the global economy should soon respond within normal policy lags. 95% of central banks are loosening policy, which normally leads to an escalation in global activity (Chart I-8). The dominant central banks (the Federal Reserve, the European Central Bank and the Bank of Japan) will not tighten anytime soon. Inflation expectations in the U.S., the euro area and Japan stand at 1.9%, 1.1%, and 0.2%, respectively, well below levels consistent with a 2% inflation target. Moreover, U.S. core CPI has been perky, but both the ISM and the performance of transportation equities relative to utilities indicate that a deceleration in inflation is imminent (Chart I-9). Salaries are not yet inflationary either because U.S. real wages are growing in line with productivity (Chart I-9, bottom panel). In the euro area and Japan, realized core inflation remains at 1.0% and 0.5%, respectively, and supports the dovish message emanating from inflation expectations. Chart I-8Easier Global Policy Is Important Chart I-9If Inflation Peaks, The U.S. Economy Will Breath A Sigh Of Relief     Liquidity indicators are reflecting this accommodative policy setting. The growth of U.S. and European bank deposits has reaccelerated from 2.5% to 6%, a development linked to the exit of a soft patch (Chart I-10). Moreover, BCA’s U.S. Financial Liquidity Indicator is still moving higher and flashing a resurgence in the BCA Global Leading Economic Indicator (LEI), the ISM Manufacturing Index, commodity prices, and EM export prices (Chart I-11). Finally, U.S. and global excess money reinforce the message of BCA’s U.S. Financial liquidity Indicator (Chart I-12). Chart I-10Deposits Suggest The Worst Of The Slowdown Is Behind Us Chart I-11Continued Pick-Up In Financial Liquidity       The Fed will add to the supply of global liquidity by tackling the repo market’s seize-up. Depleting excess reserves and mounting financing needs among primary dealers resulted in the September surge in the Secured Overnight Financing Rate (SOFR). The Fed announced three weeks ago it would buy $60 billion per month of T-Bills and T-Notes, which will lead to a climbing stock of excess reserves. Higher excess reserves create a weaker dollar, stronger EM currencies and firming global PMIs (Chart I-13). Ultimately, EM currency strength eases EM financial conditions, which supports global growth (Chart I-13, bottom panel). Chart I-12Excess Liquidity Is Accelerating Chart I-13U.S. Excess Reserves Will Grow Again   Borrowing activity in Advanced Economies is showing signs of life. Bank credit is already responding to the drop in global yields, and global corporate bond issuance in September 2019 rose to $434 billion. In the U.S., new issues of corporate bonds have also reaccelerated (Chart I-14). Global Growth Indicators Crucial indicators of global economic activity are picking up on this improving fundamental backdrop. The list includes: A sharp takeoff in the annualized three-month rate of change of capital goods orders in the U.S., the Eurozone and Japan (Chart I-15, top panel). Improvement in this indicator precedes progress in the annual growth rate of orders and in capex itself. Chart I-14Borrowers Are Responding To Easier Financial Conditions Chart I-15Some Green Shoots Are Coming Through Chart I-16Positive Market Signals A significant upturn in the Philly Fed, Empire State, and Richmond Fed manufacturing surveys for October, which sends a positive signal for the ISM Manufacturing Index (Chart I-15, second panel). Moreover, the new orders and employment components of these surveys indicate that cyclical sectors of the economy will recover and the recent deterioration in employment conditions will be fleeting. A rebound in BCA’s EM economic diffusion index, which incorporates 23 variables. Such an increase usually precedes inflections in global industrial production (Chart I-15, bottom panel). An acceleration – both in absolute and relative terms - in the annual appreciation of Taiwanese stocks. A strong and outperforming Taiwanese equity market is a harbinger of firmer PMIs (Chart I-16, top two panels). A solid performance of EM carry trades financed in yen, European luxury equities, and the relative performance of global semiconductors, materials and industrial stocks, which signal stronger global PMIs (Chart I-16, bottom three panels). Bottom Line: The global economy will accelerate in Q1 2020. A melting probability of a “No-Deal” Brexit and a truce in the Sino-U.S. trade war will allow global uncertainty to recede. Concurrently, China’s economic slowdown is ending and global liquidity conditions are improving. The Dollar As The Arbiter Of Growth Chart I-17The Dollar Is A Counter-Cyclical Currency The dollar faces potent headwinds. The greenback is a countercyclical currency; a business cycle upswing and a weak USD go hand in hand (Chart I-17). The tightness of this relationship results from a powerful feedback loop: weak growth boosts the dollar, but the dollar’s strength foments additional economic slowdown. Global liquidity and activity indicators signal a weaker dollar because they point toward an economic recovery. BCA’s U.S. Financial Liquidity Index, which foresaw a deceleration in the greenback’s rate of appreciation, is calling for an outright depreciation (Chart I-18, top panel). The expanding holdings of securities on U.S. commercial banks’ balance sheets (a key measure of liquidity) corroborates this message. According to a model based on the U.S., Eurozone, Japanese and Chinese broad money supply, the USD should significantly depreciate in the coming 12 months (Chart I-18, third panel). Finally, our EM Economic Diffusion Index validates pressures on the greenback, especially against commodity currencies (Chart I-18, bottom two panels). Chart I-18Liquidity And Growth Indicators Point To A Weaker Dollar Growth differentials support this picture. Late last year, the stimulating effect of President Trump’s tax cuts allowed the U.S. to temporarily diverge from a weak global economy, but the U.S. manufacturing sector is now succumbing to the global slowdown. Once global growth snaps back, the U.S. is likely to lag behind as fiscal policy is becoming more stimulative outside the U.S. than in the U.S. Based on historical delays, this will continue to hurt the dollar (Chart I-19, top panel). Finally, the European economy generally outperforms the U.S. when China reflates, especially if Beijing’s push lifts the growth rate of M1 relative to M2, a proxy for China’s aggregate marginal propensity to consume (Chart I-20). Europe’s greater cyclicality reflects is larger exposure to both trade and manufacturing compared with the U.S. Chart I-19A Global Growth Convergence Will Hurt The Dollar Chart I-20European Growth To Rise Vis-A-Vis The U.S.   The greenback is expensive and technically vulnerable, which compounds its cyclical risk. The trade-weighted dollar is at a 25% premium to its purchasing power parity equilibrium (PPP), an overvaluation comparable to its 1985 and 2002 peaks. Moreover, our Composite Technical Indicator is overextended and has formed a negative divergence with the price of the dollar (see page 54, Section III). Finally, speculators are massively long the U.S. Dollar Index (DXY). Balance-of-payment flows also flash a significant downside in the dollar (Chart I-21). The U.S. current account deficit stands at 2.5% of GDP, but it is widening in response to the dollar’s overvaluation and the White House’s expansive fiscal policy. Since 2011, foreign direct investments (FDI) have been the main driver of the dollar’s gyrations. Last year, net FDI surged in response to profit repatriations encouraged by the Tax Cuts and Jobs Act of 2017, while portfolio flows stayed in neutral territory. This regulatory change had a one-off impact and FDI will begin to dry out. Therefore, financing the widening current account deficit will become harder. Finally, after years in the red, net portfolio flows into Europe have turned positive (Chart I-21, bottom panel). The USD’s depreciation will ease global financial conditions and supports growth further. In this context, interest rate differentials are noteworthy. The two-year spread in real rates between the U.S. and the rest of the G-10 has fallen significantly since October 2018. Reversals in real rates herald a weaker dollar, especially when it faces valuation, technical and flow handicaps. Moreover, European five-year forward short rate expectations are near record lows. If global growth can stabilize, then the five-year forward one-month OIS will pick up, especially relative to the U.S. An uptick will boost the EUR/USD pair and hurt the dollar (Chart I-22). Chart I-21Balance-Of-Payments Dynamics Turning Against The USD Chart I-22Relative Long-Term Rate Expectations And The Euro   The three most pro-cyclical currencies in the G-10 – the AUD, NZD and SEK - strengthen the most when BCA’s Global LEI bottoms but global inflation slows (Chart I-23). The GBP will likely generate a much stronger-than-normal performance next year. Cable trades at a 22% discount to PPP. It is also 19% cheap versus short-term interest rate parity models. The absence of a “No-Deal” Brexit should allow these risk premia to dissipate and the pound to recover. The CAD is also more attractive than Chart I-23 implies. The loonie is trading 10% below its PPP, and the USD/CAD often lags the EUR/CAD, a pair that has broken down (Chart I-24). Chart I-23Currency Performance As A Function Of Growth And Inflation Chart I-24EUR/CAD Flashing A Bearish USD/CAD Signal Bottom Line: A rebound in the global manufacturing sector next year will hurt the USD. The dollar is particularly vulnerable because growth differentials between the U.S. and the rest of the world have melted, the greenback is expensive, balance-of-payment dynamics are deteriorating and interest rate differentials are becoming less supportive. The USD’s depreciation will ease global financial conditions and supports growth further. Additional Investment Implications Bond Yields Have More Upside While the short-term outlook for bonds remains murky, the 12- to 18-month outlook is unambiguously bearish. The BCA Bond Valuation Index is still consistent with much higher U.S. yields in the next 12-18 months (see Section III, page 51). BCA’s Composite Technical Indicator for T-Notes is massively overbought and sentiment, as approximated by the Long-Term Interest Rates component of the ZEW survey, is overly bullish (Chart I-25). Thus, bonds represent an attractive cyclical sell. The Fed will not cut rates aggressively enough for bonds to ignore these valuation and technical risks. Treasurys have outperformed cash by 7.5% in the past year. Based on historical relationships, the Fed needs to cut rates to zero for bonds to beat cash in the coming 12 months (Chart I-26). After this week’s Fed cut to 1.75%, our base case is none to maybe one more rate cut. Chart I-25Sentiment Points To Yield Upside Chart I-26The Fed Must Cut To Zero For T-Notes To Outperform Cash Further   Bond yields will need a recession to move lower. The deviation of 10-year Treasury yields from their two-year moving average closely tracks the Swedish Economic Diffusion Index (Chart I-27, top panel). Sweden, a small, open economy highly levered to the global industrial cycle, is a good gauge of the global business cycle. The broad weakness in the Swedish economy is unlikely to worsen unless the global slowdown morphs into a deep recession. Even if global growth remains mediocre, Sweden’s Economic Diffusion Index will rise along with yields. The expansion in securities holdings of U.S. commercial banks and the stabilization in China’s credit flows both support this notion (Chart I-27, bottom panel). Financial market developments also point to higher yields. Sectors that typically capture the momentum in the global economy are perking up. For example, bottoms in the annual performance of European luxury equities or Taiwanese stocks have preceded increases in yields (Chart I-28). Chart I-27Yields Have Upside Chart I-28Key Financial Market Signals For Yields   Stocks Will Outperform Bonds Our conviction is strengthening that equities will outperform bonds. The total return of the stock-to-bond ratio has upside. BCA’s Global Economic and Financial Diffusion Index has rallied sharply, which often precedes an ascent in the stock-to-bond ratio, both in the U.S. and globally (Chart I-29). Bonds are much more expensive than stocks, therefore, only a recession will allow stocks to underperform in the coming 12 to 18 months. The environment is positive for equities. BCA’s Monetary Indicator is very elevated and our Composite Sentiment Indicator shows little complacency toward stocks among investors (see Section III, page 47). Finally, the strength in the U.S. Financial Liquidity Indicator supports the S&P 500’s returns (Chart I-30). Chart I-29Cyclical Indicators Argue In Favor Of Stocks Over Bonds Chart I-30Liquidity Tailwind For The S&P 500   A few market developments are noteworthy. 55.6% of the S&P 500’s constituents have reported Q3 earnings, and 74% of those firms are beating estimates. Moreover, the market is generously rewarding firms with the largest positive earnings surprises. Additionally, the Value Line Geometric Index is forming a reverse head-and-shoulder pattern, while the relative performance of the Russell 2000 has formed a double bottom (Chart I-31). The environment also favors cyclicals relative to defensive equities. By lifting bond yields, stronger economic activity leads to a contraction in the multiples of defensives relative to cyclicals. The latter’s earnings expectations respond more positively to reviving economic activity, which creates an offset to climbing discount rates. As a result, cyclicals often outperform defensives when the stock-to-bond ratio increases, or after Taiwanese equities gain momentum (Chart I-32). Chart I-31Improving Equity Market Dynamics Chart I-32Favor Cyclicals Over Defensives   Compared to other equity markets, the U.S. faces the most challenges. Our model forecasts a 3% annual drop in the S&P 500’s operating earnings in June 2020, and the deviation of U.S. equities from their 200-day moving average has greatly diverged from net earnings revisions (Chart I-33). U.S. equities have already discounted a turnaround in earnings. Moreover, the S&P 500’s margins have downside, a topic covered by BCA’s Chief Equity Strategist Anastasios Avgeriou.4 Our Composite Margin Proxy, Operating Margins Diffusion Index and Corporate Pricing Power Indicator all remain weak (Chart I-34). Downward pressure on margins will limit how rapidly earnings respond when a rebound in global economic activity lifts revenues. Finally, the S&P 500 trades at a historically elevated forward P/E ratio of 18.4, the MSCI EAFE trade at a much more reasonable 14-times forward earnings. Chart I-33Headwinds For U.S. Stocks Chart I-34Headwinds For U.S. Margins   The tech sector will also weigh on the performance of U.S. equities relative to international stocks. Tech stocks represent 22.5% of the U.S. benchmark, compared with 9.7% for the euro area. Anastasios recently argued that software spending has remained surprisingly resilient despite the global economic slowdown; it will likely lag spending on machinery and structures when the cycle picks up.5 Consequently, tech earnings will lag other traditional cyclical sectors. Moreover, tech multiples will suffer when the dollar depreciates and bond yields rise (Chart I-35). As high-growth stocks, tech equities derive a large proportion of their intrinsic value from long-term deferred cash flows and their terminal value. Thus, tech multiples are highly sensitive to discount factors. Unaffected by those negatives, European equities will benefit most from the outperformance of stocks relative to bonds. A weak dollar will be the first positive for the common-currency returns of European equities. Valuations are the second tailwind. The risk premium for European equities is 300 basis points higher than for U.S. stocks. Moreover, U.S. margins will likely diminish relative to the Eurozone’s because of stronger unit labor costs in the U.S. Sector composition will also dictate the performance of European equities. Compared with the U.S., Europe is underweight tech and healthcare stocks, a defensive sector (Table I-1). Investors who favor Europe will also bet against these two sectors. Europe is a wager on the other cyclical sectors: materials, industrials, energy and financials. Chart I-35Tech P/Es Are At Risk Table I-1Europe Overweights The Correct Cyclicals   European financials are particularly attractive. Negative European yields are a major handicap for European financials, but this handicap is already reflected in their price. European banks trade at a price-to-book ratio of 0.6 versus 1.3 for the U.S. This discount should be narrowing, not widening. Yields are bottoming and European loan growth is contracting at a -2% annual rate relative to the U.S. versus -8.6% five years ago. Meanwhile, the annual rate of change of European deposits is in line with the U.S. The attraction of European banks comes from the outlook for their return on tangible equity. A model shows that three variables govern European banks’ ROE: German yields, Italian spreads and the momentum of the silver-to-gold ratio (SGR). German yields impact net interest margins, Italian spreads drive peripheral financial conditions and thus, loan generation in the European periphery, and the SGR tracks the global manufacturing cycle (silver has more industrial uses than gold, but is equally sensitive to real yields), which affects loan flows in the European core. This model logically tracks the performance of European banks and financials (Chart I-36). Our positive outlook on global growth and yields, along with the fall in Italian spreads, augurs well for cheap European financial equities and banks in particular. Commodities Our constructive stance on the global business cycle and yields, plus our negative view on the greenback, is consistent with higher industrial commodity prices. Copper looks particularly attractive. Speculators are aggressively selling the metal, whose price stands at an important technical juncture (Chart I-37). Chart I-36The Drivers Of RoE Point To Higher European Bank Stock Prices Chart I-37Cooper Is An Attractive Play On Global Growth   Chart I-38Favorable Technical Backdrop For Silver-To-Gold Ratio Finally, we have favored the SGR since late June. Silver is deeply oversold and under-owned relative to the yellow metal (Chart I-38). Consequently, silver’s greater industrial usage should be a potent tailwind for the SGR.6 Mathieu Savary Vice President The Bank Credit Analyst October 31, 2019 Next Report: November 22, 2019 - Outlook 2020   II. Back To The Nineteenth Century The Cold War is a limited analogy for the U.S.-China conflict; In a multipolar world, complete bifurcation of trade is difficult if not impossible; History suggests that trade between rivals will continue, with minimal impediments; On a secular horizon, buy defense stocks, Europe, capex, and non-aligned countries. There is a growing consensus that China and the U.S. are hurtling towards a Cold War. BCA Research played some part in this consensus – at least as far as the investment community is concerned – by publishing “Power and Politics in East Asia: Cold War 2.0?” in September 2012.7 For much of this decade, Geopolitical Strategy focused on the thesis that geopolitical risk was rotating out of the Middle East, where it was increasingly irrelevant, to East Asia, where it would become increasingly relevant. This thesis remains cogent, but it does not mean that a “Silicon Curtain” will necessarily divide the world into two bifurcated zones of capitalism. Trade, capital flows, and human exchanges between China and the U.S. will continue and may even grow. But the risk of conflict, including a military one, will not decline. In this report, we first review the geopolitical logic that underpins Sino-American tensions. We then survey the academic literature for clues on how that relationship will develop vis-à-vis trade and economic relations. The evidence from political theory is surprising and highly investment relevant. We then look back at history for clues as to what this means for investors. The U.S.-China conflict will not lead to complete bifurcation of the global economy. Our conclusion is that it is highly likely that the U.S. and China will continue to be geopolitical rivals. However, due to the geopolitical context of multipolarity, it is unlikely that the result will be “Bifurcated Capitalism.” Rather, we expect an exciting and volatile environment for investors where geopolitics takes its historical place alongside valuation, momentum, fundamentals, and macroeconomics in the pantheon of factors that determine investment opportunities and risks. The Thucydides Trap Is Real … Speaking in the Reichstag in 1897, German Foreign Secretary Bernhard von Bülow proclaimed that it was time for Germany to demand “its own place in the sun.”8 The occasion was a debate on Germany’s policy towards East Asia. Bülow soon ascended to the Chancellorship under Kaiser Wilhelm II and oversaw the evolution of German foreign policy from Realpolitik to Weltpolitik. While Realpolitik was characterized by Germany’s cautious balancing of global powers under Chancellor Otto von Bismarck, Weltpolitik saw Bülow and Wilhelm II seek to redraw the status quo through aggressive foreign and trade policy. Imperial Germany joined a long list of antagonists, from Athens to today’s People’s Republic of China, in the tragic play of human history dubbed the “Thucydides Trap.”9 Chart II-1Imperial Overstretch The underlying concept is well known to all students of world history. It takes its name from the Greek historian Thucydides and his seminal History of the Peloponnesian War. Thucydides explains why Sparta and Athens went to war but, unlike his contemporaries, he does not moralize or blame the gods. Instead, he dispassionately describes how the conflict between a revisionist Athens and established Sparta became inevitable due to a cycle of mistrust. Graham Allison, one of America’s preeminent scholars of international relations, has argued that the interplay between a status quo power and a challenger has almost always led to conflict. In 12 out of the 16 cases he surveyed, actual military conflict broke out. Of the four cases where war did not develop, three involved transitions between countries that shared a deep cultural affinity and a respect for the prevailing institutions.10 In those cases, the transition was a case of new management running largely the same organizational structure. And one of the four non-war outcomes was nothing less than the Cold War between the Soviet Union and the U.S. The fundamental problem for a status quo power is that its empire or “sphere of influence” remains the same size as when it stood at the zenith of power. However, its decline in a relative sense leads to a classic problem of “imperial overstretch.” The hegemonic or imperial power erroneously doubles down on maintaining a status quo that it can no longer afford (Chart II-1). The challenger power is not blameless. It senses weakness in the hegemon and begins to develop a regional sphere of influence. The problem is that regional hegemony is a perfect jumping off point towards global hegemony. And while the challenger’s intentions may be limited and restrained (though they often are ambitious and overweening), the status quo power must react to capabilities, not intentions. The former are material and real, whereas the latter are perceived and ephemeral. In a multipolar world, the U.S. will not be able to exclude China from the global system. The challenging power always has an internal logic justifying its ambitions. In China’s case today, there is a sense among the elite that the country is merely mean-reverting to the way things were for many centuries in China’s and Asia’s long history (Chart II-2). In other words, China is a “challenger” power only if one describes the status quo as the past three hundred years. It is the “established” power if one goes back to an earlier state of affairs. As such, the consensus in China is that it should not have to pay deference to the prevailing status quo given that the contemporary context is merely the result of western imperialist “challenges” to the established Chinese and regional order. Chart II-2China’s Mean Reverting Narrative In addition, China has a legitimate claim that it is at least as relevant to the global economy as the U.S. and therefore deserves a greater say in global governance. While the U.S. still takes a larger share of the global economy, China has contributed 23% to incremental global GDP over the past two decades, compared to 13% for the U.S. (Chart II-3). Chart II-3The Beijing Consensus Bottom Line: The emerging tensions between China and the U.S. fit neatly into the theoretical and empirical outlines of the Thucydides Trap. We do not see any way for the two countries to avoid struggle and conflict on a secular or forecastable horizon. What does this mean for investors? For one, the secular tailwinds behind defense stocks will persist. But what beyond that? Is the global economy destined to witness complete bifurcation into two armed camps separated by a Silicon Curtain? Will the Alibaba and Amazon Pacts suspiciously glare at each other the way that NATO and Warsaw Pacts did amidst the Cold War? The answer, tentatively, is no. … But It Will Not Lead To Economic Bifurcation President Trump’s aggressive trade policy also fits neatly into political theory, to a point. Realism in political science focuses on relative gains over absolute gains in all relationships, including trade. This is because trade leads to economic prosperity, prosperity to the accumulation of economic surplus, and economic surplus to military spending, research, and development. Two states that care only about relative gains due to rivalry produce a zero-sum game with no room for cooperation. It is a “Prisoner’s Dilemma” that can lead to sub-optimal economic outcomes in which both actors chose not to cooperate. Diagram II-1 illustrates the effects of relative gain calculations on the trade behavior of states. In the absence of geopolitics, demand (Q3) is satisfied via trade (Q3-Q0) due to the inability of domestic production (Q0) to meet it. Diagram II-1Trade War In A Bipolar World However, geopolitical externality – a rivalry with another state – raises the marginal social cost of imports – i.e. trade allows the rival to gain more out of trade and “catch up” in terms of geopolitical capabilities. The trading state therefore eliminates such externalities with a tariff (t), raising domestic output to Q1, while shrinking demand to Q2, thus reducing imports to merely Q2-Q1, a fraction of where they would be in a world where geopolitics do not matter. The dynamic of relative gains can also have a powerful pull on the hegemon as it begins to weaken and rethink its originally magnanimous trade relations. As political scientist Duncan Snidal argued in a 1991 paper, When the global system is first set up, the hegemon makes deals with smaller states. The hegemon is concerned more with absolute gains, smaller states are more concerned with relative, so they are tougher negotiators. Cooperative arrangements favoring smaller states contribute to relative hegemonic decline. As the unequal distribution of benefits in favor of smaller states helps them catch up to the hegemonic actor, it also lowers the relative gains weight they place on the hegemonic actor. At the same time, declining relative preponderance increases the hegemonic state’s concern for relative gains with other states, especially any rising challengers. The net result is increasing pressure from the largest actor to change the prevailing system to gain a greater share of cooperative benefits.11 History teaches us that trade occurs even amongst rivals and during wartime. The reason small states are initially more concerned with relative gains is because they are far more concerned with national security than the hegemon. The hegemon has a preponderance of power and is therefore more relaxed about its security needs. This explains why Presidents George Bush Sr., Bill Clinton, and George Bush Jr. all made “bad deals” with China. Writing nearly thirty years ago, Snidal cogently described the current U.S.-China trade war. Snidal thought he was describing a coming decade of anarchy. But he and fellow political scientists writing in the early 1990s underestimated American power. The “unipolar moment” of American supremacy was not over, it was just beginning! As such, the dynamic Snidal described took thirty years to come to fruition. When thinking about the transition away from U.S. hegemony, most investors anchor themselves to the Cold War as it is the only world they have known that was not unipolar. Moreover the Cold War provides a simple, bipolar distribution of power that is easy to model through game theory. If this is the world we are about to inhabit, with the U.S. and China dividing the whole planet into spheres like the U.S. and Soviet Union, then the paragraph we lifted from Snidal’s paper would be the end of it. America would abandon globalization in totality, impose a draconian Silicon Curtain around China, and coerce its allies to follow suit. But most of recent human history has been defined by a multipolar distribution of power between states, not a bipolar one. The term “cold war” is applicable to the U.S. and China in the sense that comparable military power may prevent them from fighting a full-blown “hot war.” But ultimately the U.S.-Soviet Cold War is a poor analogy for today’s world. In a multipolar world, Snidal concludes, “states that do not cooperate fall behind other relative gains maximizers that cooperate among themselves. This makes cooperation the best defense (as well as the best offense) when your rivals are cooperating in a multilateral relative gains world.” Snidal shows via formal modeling that as the number of players increases from two, relative-gains sensitivity drops sharply.12 The U.S.-China relationship does not occur in a vacuum — it is moderated by the global context. Today’s global context is one of multipolarity. Multipolarity refers to the distribution of geopolitical power, which is no longer dominated by one or two great powers (Chart II-4). Europe and Japan, for instance, have formidable economies and military capabilities. Russia remains a potent military power, even as India surpasses it in terms of overall geopolitical power. Chart II-4The World Is No Longer Bipolar A multipolar world is the least “ordered” and the most unstable of world systems (Chart II-5). This is for three reasons: Chart II-5Multipolarity Is Messy Math: Multipolarity engenders more potential “conflict dyads” that can lead to conflict. In a unipolar world, there is only one country that determines norms and rules of behavior. Conflict is possible, but only if the hegemon wishes it. In a bipolar world, conflict is possible, but it must align along the axis of the two dominant powers. In a multipolar world, alliances are constantly shifting and producing novel conflict dyads. Lack of coordination: Global coordination suffers in periods of multipolarity as there are more “veto players.” This is particularly problematic during times of stress, such as when an aggressive revisionist power uses force or when the world is faced with an economic crisis. Charles Kindleberger has argued that it was exactly such hegemonic instability that caused the Great Depression to descend into the Second World War in his seminal The World In Depression.13 Mistakes: In a unipolar and bipolar world, there are a very limited number of dice being rolled at once. As such, the odds of tragic mistakes are low and can be mitigated with complex formal relationships (such as U.S.-Soviet Mutually Assured Destruction, grounded in formal modeling of game theory). But in a multipolar world, something as random as an assassination of a dignitary can set in motion a global war. The multipolar system is far more dynamic and thus unpredictable. Diagram II-2 is modified for a multipolar world. Everything is the same, except that we highlight the trade lost to other great powers. The state considering using tariffs to lower the marginal social cost of trading with a rival must account for this “lost trade.” In the context of today’s trade war with China, this would be the sum of all European Airbuses and Brazilian soybeans sold to China in the place of American exports. For China, it would be the sum of all the machinery, electronics, and capital goods produced in the rest of Asia and shipped to the United States. Diagram II-2Trade War In A Multipolar World Could Washington ask its allies – Europe, Japan, South Korea, Taiwan, etc. – not to take advantage of the lucrative trade (Q3-Q0)-(Q2-Q1) lost due to its trade tiff with China? Sure, but empirical research shows that they would likely ignore such pleas for unity. Alliances produced by a bipolar system produce a statistically significant and large impact on bilateral trade flows, a relationship that weakens in a multipolar context. This is the conclusion of a 1993 paper by Joanne Gowa and Edward D. Mansfield.14 The authors draw their conclusion from an 80-year period beginning in 1905, which captures several decades of global multipolarity. Unless the U.S. produces a wholehearted diplomatic effort to tighten up its alliances and enforce trade sanctions – something hardly foreseeable under the current administration – the self-interest of U.S. allies will drive them to continue trading with China. The U.S. will not be able to exclude China from the global system; nor will China be able to achieve Xi Jinping’s vaunted “self-sufficiency.” A risk to our view is that we have misjudged the global system, just as political scientists writing in the early 1990s did. To that effect, we accept that Charts II-1 and II-4 do not really support a view that the world is in a balanced multipolar state. The U.S. clearly remains the most powerful country in the world. The problem is that it is also clearly in a relative decline and that its sphere of influence is global – and thus very expensive – whereas its rivals have merely regional ambitions (for the time being). As such, we concede that American hegemony could be reasserted relatively quickly, but it would require a significant calamity in one of the other poles of power. For instance, a breakdown in China’s internal stability alongside the recovery of U.S. political stability. Bottom Line: The trade war between the U.S. and China is geopolitically unsustainable. The only way it could continue is if the two states existed in a bipolar world where the rest of the states closely aligned themselves behind the two superpowers. We have a high conviction view that today’s world is – for the time being – multipolar. American allies will cheat and skirt around Washington’s demands that China be isolated. This is because the U.S. no longer has the preponderance of power that it enjoyed in the last decade of the twentieth and the first decade of the twenty-first century. Insights presented thus far come from formal theory in political science. What does history teach us? Trading With The Enemy In 1896, a bestselling pamphlet in the U.K., “Made in Germany,” painted an ominous picture: “A gigantic commercial State is arising to menace our prosperity, and contend with us for the trade of the world.”15 Look around your own houses, author E.E. Williams urged his readers. “The toys, and the dolls, and the fairy books which your children maltreat in the nursery are made in Germany: nay, the material of your favorite (patriotic) newspaper had the same birthplace as like as not.” Williams later wrote that tariffs were the answer and that they “would bring Germany to her knees, pleading for our clemency.”16 By the late 1890s, it was clear to the U.K. that Germany was its greatest national security threat. The Germany Navy Laws of 1898 and 1900 launched a massive naval buildup with the singular objective of liberating the German Empire from the geographic constraints of the Jutland Peninsula. By 1902, the First Lord of the Royal Navy pointed out that “the great new German navy is being carefully built up from the point of view of a war with us.”17 There is absolutely no doubt that Germany was the U.K.’s gravest national security threat. As a result, London signed in April 1904 a set of agreements with France that came to be known as Entente Cordiale. The entente was immediately tested by Germany in the 1905 First Moroccan Crisis, which only served to strengthen the alliance. Russia was brought into the pact in 1907, creating the Triple Entente. In hindsight, the alliance structure was obvious given Germany’s meteoric rise from unification in 1871. However, one should not underestimate the magnitude of these geopolitical events. For the U.K. and France to resolve centuries of differences and formalize an alliance in 1904 was a tectonic shift — one that they undertook against the grain of history, entrenched enmity, and ideology.18 Political scientists and historians have noted that geopolitical enmity rarely produces bifurcated economic relations exhibited during the Cold War. Both empirical research and formal modeling shows that trade occurs even amongst rivals and during wartime.19 This was certainly the case between the U.K. and Germany, whose trade steadily increased right up until the outbreak of World War One (Chart II-6). Could this be written off due to the U.K.’s ideological commitment to laissez-faire economics? Or perhaps London feared a move against its lightly defended colonies in case it became protectionist? These are fair arguments. However, they do not explain why Russia and France both saw ever-rising total trade with the German Empire during the same period (Chart II-7). Either all three states were led by incompetent policymakers who somehow did not see the war coming – unlikely given the empirical record – or they simply could not afford to lose out on the gains of trade with Germany to each other. Chart II-6The Allies Traded With Germany ... Chart II-7… Right Up To WWI   Chart II-8Japan And U.S. Never Downshifted Trade A similar dynamic was afoot ahead of World War Two. Relations between the U.S. and Japan soured in the 1930s, with the Japanese invasion of Manchuria in 1931. In 1935, Japan withdrew from the 1922 Washington Naval Treaty – the bedrock of the Pacific balance of power – and began a massive naval buildup. In 1937, Japan invaded China. Despite a clear and present danger, the U.S. continued to trade with Japan right up until July 26, 1941, few days after Japan invaded southern Indochina (Chart II-8). On December 7, Japan attacked the U.S. A skeptic may argue that precisely because policymakers sleepwalked into war in the First and Second World Wars, they will not (or should not) make the same mistake this time around. First, we do not make policy prescriptions and therefore care not what should happen. Second, we are highly skeptical of the view that policymakers in the early and mid-twentieth century were somehow defective (as opposed to today’s enlightened leaders). Our constraints-based framework urges us to seek systemic reasons for the behavior of leaders. Political science provides a clear theoretical explanation for why London and Washington continued to trade with the enemy despite the clarity of the threat. The answer lies in the systemic nature of the constraint: a multipolar world reduces the sensitivity of policymakers to relative gains by introducing a collective action problem thanks to changing alliances and the difficulty of disciplining allies’ behavior. In the case of U.S. and China, this is further accentuated by President Trump’s strategy of skirting multilateral diplomacy and intense focus on mercantilist measures of power (i.e. obsession with the trade deficit). An anti-China trade policy that was accompanied by a magnanimous approach to trade relations with allies could have produced a “coalition of the willing” against Beijing. But after two years of tariffs and threats against the EU, Japan, and Canada, the Trump administration has already signaled to the rest of the world that old alliances and coordination avenues are up for revision. There are two outcomes that we can see emerging over the course of the next decade. First, U.S. leadership will become aware of the systemic constraints under which they operate, and trade with China will continue – albeit with limitations and variations. However, such trade will not reduce the geopolitical tensions, nor will it prevent a military conflict. In facts, the probability of military conflict may increase even as trade between China and the U.S. remains steady. Second, U.S. leadership will fail to correctly assess that they operate in a multipolar world and will give up the highlighted trade gains from Diagram II-2 to economic rivals such as Europe and Japan. Given our methodological adherence to constraint-based forecasting, we highly doubt that the latter scenario is likely. Bottom Line: The China-U.S. conflict is not a replay of the Cold War. Systemic pressures from global multipolarity will force the U.S. to continue to trade with China, with limitations on exchanges in emergent, dual-use technologies that China will nonetheless source from other technologically advanced countries. This will create a complicated but exciting world where geopolitics will cease to be seen as exogenous to investing. A risk to the sanguine conclusion is that the historical record is applicable to today, but that the hour is late, not early. It is already July 26, 1941 – when U.S. abrogated all trade with Japan – not 1930. As such, we do not have another decade of trade between U.S. and China remaining, we are at the end of the cycle. While this is a risk, it is unlikely. American policymakers would essentially have to be willing to risk a military conflict with China in order to take the trade war to the same level they did with Japan. It is an objective fact that China has meaningfully stepped up aggressive foreign policy in the region. But unlike Japan in 1941, China has not outright invaded any countries over the past decade. As such, the willingness of the public to support such a conflict is unclear, with only 21% of Americans considering China a top threat to the U.S. Investment Implications This analysis is not meant to be optimistic. First, the U.S. and China will continue to be rivals even if the economic relationship between them does not lead to global bifurcation. For one, China continues to be – much like Germany in the early twentieth century – concerned with access to external markets on which 19.5% of its economy still depend. China is therefore developing a modern navy and military not because it wants to dominate the rest of the world but because it wants to dominate its near abroad, much as the U.S. wanted to, beginning with the Monroe Doctrine. This will continue to lead to Chinese aggression in the South and East China Seas, raising the odds of a conflict with the U.S. Navy. Given that the Thucydides Trap narrative remains cogent, investors should look to overweight S&P 500 aerospace and defense stocks relative to global equity markets. An alternative way that one could play this thesis is by developing a basket of global defense stocks. Multipolarity may create constraints to trade protectionism, but it engenders geopolitical volatility and thus buoys defense spending. Second, we would not expect another uptick in globalization. Multipolarity may make it difficult for countries to completely close off trade with a rival, but globalization is built on more than just trade between rivals. Globalization requires a high level of coordination among great powers that is only possible under hegemonic conditions. Chart II-9 shows that the hegemony of the British and later American empires created a powerful tailwind for trade over the past two hundred years. Chart II-9The Apex Of Globalization Is Behind Us The Apex of Globalization has come and gone – it is all downhill from here. But this is not a binary view. Foreign trade will not go to zero. The U.S. and China will not completely seal each other’s sphere of influence behind a Silicon Curtain. Instead, we focus on five investment themes that flow from a world that is characterized by the three trends of multipolarity, Sino-U.S. geopolitical rivalry, and apex of globalization: Europe will profit: As the U.S. and China deepen their enmity, we expect some European companies to profit. There is some evidence that the investment community has already caught wind of this trend, with European equities modestly outperforming their U.S. counterparts whenever trade tensions flared up in 2019 (Chart II-10). Given our thesis, however, it is unlikely that the U.S. would completely lose market share in China to Europe. As such, we specifically focus on tech, where we expect the U.S. and China to ramp up non-tariff barriers to trade regardless of systemic pressures to continue to trade. A strategic long in the secularly beleaguered European tech companies relative to their U.S. counterparts may therefore make sense (Chart II-11). Chart II-10Europe: A Trade War Safe Haven Chart II-11Is Europe Really This Incompetent? USD bull market will end: A trade war is a very disruptive way to adjust one’s trade relationship. It opens one to retaliation and thus the kind of relative losses described in this analysis. As such, we expect that U.S. to eventually depreciate the USD, either by aggressively reversing 2018 tightening or by coercing its trade rivals to strengthen their currencies. Such a move will be yet another tailwind behind the diversification away from the USD as a reserve currency, a move that should benefit the euro. Bull market in capex: The re-wiring of global manufacturing chains will still take place. The bad news is that multinational corporations will have to dip into their profit margins to move their supply chains to adjust to the new geopolitical reality. The good news is that they will have to invest in manufacturing capex to accomplish the task. One way to articulate this theme is to buy an index of semiconductor capital companies (AMAT, LRCX, KLAC, MKSI, AEIS, BRIKS, and TER). Given the highly cyclical nature of capital companies, we would recommend an entry point once trade tensions subside and green shoots of global growth appear. “Non-aligned” markets will benefit: The last time the world was multipolar, great powers competed through imperialism. This time around, a same dynamic will develop as countries seek to replicate China’s “Belt and Road Initiative.” This is positive for frontier markets. A rush to provide them with exports and services will increase supply and thus lower costs, providing otherwise forgotten markets with a boon of investments. India, and Asia-ex-China more broadly, stand as intriguing alternatives to China, especially with the current administration aggressively reforming to take advantage of the rewiring of global manufacturing chains. Capital markets will remain globalized: With interest rates near zero in much of the developed world and the demographic burden putting an ever-greater pressure on pension plans to generate returns, the search for yield will continue to be a powerful drive that keeps capital markets globalized. Limitations are likely to grow, especially when it comes to cross-border private investments in dual-use technologies. But a completely bifurcation of capital markets is unlikely. The world we are describing is one where geopolitics will play an increasingly prominent role for global investors. It would be convenient if the world simply divided into two warring camps, leaving investors with neatly separated compartments that enabled them to go back to ignoring geopolitics. This is unlikely. Rather, the world will resemble the dynamic years at the end of the nineteenth century, a rough-and-tumble era that required a multi-disciplinary approach to investing. Marko Papic Consulting Editor, BCA Research Chief Strategist, Clocktower Group III. Indicators And Reference Charts The S&P 500 is making marginally new all-time highs. Seasonality is becoming very favorable for stock prices. However, our U.S. profit model continues to point south and expanding multiples have already driven this year’s equity gains. The S&P 500 has therefore already priced in a significant improvement in profits. Further P/E expansion will be harder to come by with bond yields set to rise. Thus, until the dollar falls and creates another tailwind for profits, stocks will not be as strong as seasonality suggests and will only make marginal new highs. Our Revealed Preference Indicator (RPI) remains cautious towards equities. The RPI combines the idea of market momentum with valuation and policy measures. It provides a powerful bullish signal if positive market momentum lines up with constructive readings from the policy and valuation measures. Conversely, if strong market momentum is not supported by valuations and policy, investors should lean against the market trend. Until global growth bottoms and boosts the earnings forecasts of our models, stock gains will stay limited. The outlook for next year remains constructive for stocks. Our Willingness-to-Pay (WTP) indicator for the U.S. continues to improve. This same indicator has recently turned lower in Japan. Meanwhile, it is deteriorating further in Europe. The WTP indicator tracks flows, and thus provides information on what investors are actually doing, as opposed to sentiment indexes that track how investors are feeling. Global yields have turned higher but they remain at exceptionally stimulating levels. Moreover, money and liquidity growth has picked up around the world, and global central banks continue to conduct very dovish policies. As a result, our Monetary Indicator remains at extremely elevated levels. Furthermore, our Composite Technical Indicator is still flashing a buy signal. Also, our BCA Composite Valuation index is still improving. As a result, our Speculation Indicator is back in the neutral zone. 10-year Treasury yields continue to rise, but they remain very expensive. Moreover, both our Bond Valuation Index and our Composite Technical Indicators are still flashing high-conviction sell signals. If the strengthening of the Commodity Index Advance/Decline line results in higher natural resource prices, then, inflation breakevens will also climb meaningfully. Therefore, the current setup argues for a below-benchmark duration in fixed-income portfolios. Weak global growth has been the key support for the dollar in recent months. On a PPP basis, the U.S. dollar remains extremely expensive. Additionally, our Composite Technical Indicator has lost momentum and has formed a negative divergence with the Greenback’s level. Moreover, the U.S. current account deficit has begun to widen anew. This backdrop makes the dollar highly vulnerable to a rebound in global growth. In fact, a breakdown in the greenback will be the clearest signal yet that global growth is rebounding for good. EQUITIES: Chart III-1U.S. Equity Indicators Chart III-2Willingness To Pay For Risk Chart III-3U.S. Equity Sentiment Indicators   Chart III-4Revealed Preference Indicator Chart III-5U.S. Stock Market Valuation Chart III-6U.S. Earnings Chart III-7Global Stock Market And Earnings: Relative Performance Chart III-8Global Stock Market And Earnings: Relative Performance   FIXED INCOME: Chart III-9U.S. Treasurys And Valuations Chart III-10Yield Curve Slopes Chart III-11Selected U.S. Bond Yields Chart III-1210-Year Treasury Yield ComponentsChart III-13U.S. Corporate Bonds And Health Monitor Chart III-14Global Bonds: Developed Markets Chart III-15Global Bonds: Emerging Markets   CURRENCIES: Chart III-16U.S. Dollar And PPP Chart III-17U.S. Dollar And Indicator Chart III-18U.S. Dollar Fundamentals Chart III-19Japanese Yen Technicals Chart III-20Euro Technicals Chart III-21Euro/Yen Technicals Chart III-23Euro/Pound Technicals   COMMODITIES: Chart III-23Broad Commodity Indicators Chart III-24Commodity Prices Chart III-25Commodity Prices Chart III-26Commodity Sentiment Chart III-27Speculative Positioning   ECONOMY: Chart III-28U.S. And Global Macro Backdrop Chart III-29U.S. Macro Snapshot Chart III-30U.S. Growth Outlook Chart III-31U.S. Cyclical Spending Chart III-32U.S. Labor Market Chart III-33U.S. Consumption Chart III-34U.S. Housing Chart III-35U.S. Debt And Deleveraging   Chart III-36U.S. Financial Conditions Chart III-37Global Economic Snapshot: Europe Chart III-38Global Economic Snapshot: China   Mathieu Savary Vice President The Bank Credit Analyst Footnotes 1   Please see The Bank Credit Analyst "September 2019," dated August 29, 2019, available at bca.bcaresearch.com 2   Please see The Bank Credit Analyst "June 2019," dated May 30, 2019, available at bca.bcaresearch.com 3   Please see The Bank Credit Analyst "August 2019," dated July 25, 2019, available at bca.bcaresearch.com 4   Please see U.S. Equity Strategy Special Report "Peak Margins," dated October 7, 2019, available at uses.bcaresearch.com 5   Please see U.S. Equity Strategy Weekly Report "Follow The Profit Trail," dated October 15, 2019, available at uses.bcaresearch.com 6   Please see Foreign  Exchange Strategy Weekly Report "On Money Velocity, EUR/USD And Silver," dated October 11, 2019, available on fes.bcaresearch.com 7   Please see BCA Research Geopolitical Strategy, “Power And Politics In East Asia: Cold War 2.0?,” September 25, 2012, “Sino-American Conflict: More Likely Than You Think,” October 4, 2013, “The Great Risk Rotation,” December 11, 2013, and “Strategic Outlook 2014 – Stay The Course: EM Risk – DM Reward,” January 23, 2014, “Underestimating Sino-American Tensions,” November 6, 2015, “The Geopolitics Of Trump,” December 2, 2016, “How To Play The Proxy Battles In Asia,” March 1, 2017, and others available at gps.bcaresearch.com or upon request. 8   Please see German Historical Institute, “Bernhard von Bulow on Germany’s ‘Place in the Sun’” (1897), available at http://germanhistorydocs.ghi-dc.org/ 9   See Graham Allison, Destined For War: Can America and China Escape Thucydides’s Trap? (New York: Houghton Miffin Harcourt, 2017).  10  The three cases are Spain taking over from Portugal in the sixteenth century, the U.S. taking over from the U.K. in the twentieth century, and Germany rising to regional hegemony in Europe in the twenty-first century. 11   Duncan Snidal, “Relative Gains and the Pattern of International Cooperation,” The American Political Science Review, 85:3 (September 1991), pp. 701-726. 12   We do not review Snidal’s excellent game theory formal modeling in this paper as it is complex and detailed. However, we highly encourage the intrigued reader to pursue the study on their own.  13   See Charles P. Kindleberger, The World In Depression, 1929-1939 (Berkeley: University of California Press, 2013). 14   Joanne Gowa and Edward D. Mansfield, “Power Politics and International Trade,” The American Political Science Review, 87:2 (June 1993), pp. 408-420. 15   See Ernest Edwin Williams, Made in Germany (reprint, Ithaca: Cornell University Press), available at https://archive.org/details/cu31924031247830. 16   Quoted in Margaret MacMillan, The War That Ended Peace (Toronto: Allen Lane, 2014). 17   Peter Liberman, “Trading with the Enemy: Security and Relative Economic Gains,” international Security, 21:1 (Summer 1996), pp. 147-175. 18  Although France and Russia overcame even greater bitterness due to the ideological differences between a republic founded on a violent uprising against its aristocracy – France – and an aristocratic authoritarian regime – Russia.  19  See James Morrow, “When Do ‘Relative Gains’ Impede Trade?” The Journal of Conflict Resolution, 41:1 (February 1997), pp. 12-37; and Jack S. Levy and Katherine Barbieri, “Trading With the Enemy During Wartime,” Security Studies, 13:3 (December 2004), pp. 1-47.

Highlights Equities & Bonds: The accelerating upward momentum of global equities – the ultimate “leading economic indicator” – suggests that the current rise in global bond yields can continue. Maintain below-benchmark overall duration exposure, while staying overweight global corporate credit versus government bonds. U.S. Agency MBS: U.S. agency MBS spreads are now attractive relative to high-quality U.S. corporate bonds, both in absolute terms and on a risk-adjusted basis. Increase allocations to agency MBS, while reducing exposure to Aaa-, Aa- and A-rated U.S. corporates. Feature The U.S. Federal Reserve and European Central Bank (ECB) are both set to ease monetary policy this week. The Fed is almost certain to deliver a third consecutive 25bp rate cut at tomorrow’s FOMC meeting, while the ECB will restart its bond buying program on Friday. Yet government bond yields around the world continue to drift higher, as markets reduce expectations of incremental rate cuts moving forward. Equity prices are an excellent leading indicator of global growth, while bond yields typically reflect current economic conditions. Thus, equity prices should be considered a leading indicator of bond yields. Chart of the WeekMore Upside For Global Bond Yields Yields are finally responding to the evidence that global growth is troughing - a dynamic that we have been telegraphing in recent weeks. Global equity markets are rallying, with the U.S. S&P 500 hitting a new all-time high yesterday. The year-over-year increase in global equities, using the MSCI World Index, is now at +10%, the fastest pace of upward acceleration seen since January 2017. Some of that rally in U.S. stock markets can be chalked up to 3rd quarter earnings beating depressed expectations. Yet there is also a forward-looking component of the rally that bond markets are starting to notice. Equity prices are an excellent leading indicator of global growth, while bond yields typically reflect current economic conditions. Thus, equity prices should be considered a leading indicator of bond yields. We see no reason to discount the positive message on growth from rallying equity markets, especially when confirmed by an improvement in our global leading economic indicator (LEI), led by the more cyclical emerging market (EM) countries (Chart of the Week). Falling stock prices in 2018 accurately heralded the global growth slowdown of 2019 which triggered the huge decline in bond yields. Why should rising stock prices not be interpreted in the same light, predicting better global growth – and higher bond yields – over the next 6-12 months? Multiple Signals Point To Higher Bond Yields The more optimistic message on growth is not only confined to developed market (DM) stock prices. EM equities and currencies have begun to perk up, with EM corporate credit spreads remaining stable, as well, mimicking the moves seen in U.S. credit markets. Bond volatility measures like the U.S. MOVE index of Treasury options are retreating to the lower levels implied by equity volatility indices like the U.S. VIX index, which is now just above the 2019 low (Chart 2). Markets are clearly pricing out some of the more negative tail-risk outcomes that prevailed through much of 2019. Some of that reduction in volatility can be attributed to the recent de-escalation of U.S.-China trade tensions and U.K. Brexit risks, both important developments that can help lift depressed global business confidence. A reduction in trade/political uncertainty should help fortify the transmission mechanism between easing global financial conditions and economic activity – an outcome that could extend the rise in yields given stretched bond-bullish duration positioning (Chart 3). Chart 2A More Pro-Risk Global Market Backdrop Chart 3Less Uncertainty = Higher Yields The improving global growth story remains the bigger factor pushing bond yields higher, though. While the manufacturing PMI data within the DM world remain weak, the downward momentum is starting to bottom out on a rate-of-change basis (Chart 4). The EM aggregate PMI index is showing even more improvement, sitting at 51 and above the year-ago level, helping confirm the pickup in EM equity market momentum (bottom panel). Importantly, if this is indeed the trough in the EM PMI, the index would have bottomed above the 2015 trough of 48.5. Given the improvement seen in “Big Mo” for global equities and global LEIs and PMIs, we remain comfortable with our current below-benchmark stance on global interest rate duration exposure.  Given the improvement seen in “Big Mo” for global equities and global LEIs and PMIs, we remain comfortable with our current below-benchmark stance on global interest rate duration exposure. How high could yields rise in the near term? Looking at yields on a country-by-country level, a reasonable initial target for yields would be a return to the medium-term trend as defined by the 200-day moving average (MA). For benchmark 10-year DM government yields, those targets are: U.S. Treasuries: the 200-day MA is 2.18%, +23bps above the current level German Bunds: the 200-day MA is -0.22%, +11bps above the current level U.K. Gilts: the 200-day MA is 0.89%, +17bps above the current level Japanese government bonds (JGBs): the 200-day MA is -0.10%, +2bps above the current level Canadian government bonds: the 200-day MA is 1.59%, -2bps below the current level Australian government bonds: the 200-day MA is 1.53%, +43bps above the current level Among those markets, the U.S. is likely to reach the level implied by the 200-day MA, led by the market pricing out the -53bps of rate cuts over the next twelve months discounted in the U.S. Overnight Index Swap curve (Chart 5) – a number that includes the likely -25bp cut tomorrow. A move beyond that 200-day MA may take longer to develop, as it would require markets to begin pricing in some reversal of the Fed’s “mid-cycle cuts” of 2019. That outcome would first require a pickup in TIPS breakevens. The Fed would not feel justified in risking a tightening of financial conditions by signaling rate hikes without the catalyst of higher inflation expectations. Chart 4EM Growth Leading The Way? Chart 5UST Yields Have More Upside German Bund yields are even closer to that 200-day MA than Treasuries but, as in the U.S., a sustained move beyond that level would require an increase in bombed-out inflation expectations, with the 10-year EUR CPI swap rate now sitting at only 1.05% (Chart 6). As for other markets, the likelihood of reaching, or breaching, the 200-day MA is more varied (Chart 7). Chart 6Bund Yield Upside Limited By Inflation The move in the Canadian 10-year yield to just above its 200-day MA fits with Canada’s status as a “high-beta” bond market, as we discussed in last week’s report.1 Chart 7Which Yields Will Test The 200-day MA? The Bank of Canada also meets this week and, while no change in policy is expected, the central bank will be publishing a new Monetary Policy Report that will update their current line of thinking about the Canadian economy and inflation. U.K. Gilts should easily blow through the 200-day MA if and when a final Brexit deal is signed, as the Bank of England remains highly reluctant to consider any policy easing even as political uncertainty weighs on economic growth. With the European Union now agreeing to an extension of the Brexit deadline to January 31, and with U.K. prime minister Boris Johnson now pursuing an early election in December, the political risk premium in Gilts will persist. Thus, Gilt yields will likely lag the move higher seen in higher-beta markets like the U.S. and Canada. JGBs remain the ultimate low-beta bond market with the Bank of Japan continuing to anchor the 10-yield around 0%, making Japan a good overweight candidate in an environment of rising global bond yields. Australian bond yields have the largest distance to the 200-day MA, but the Reserve Bank of Australia is giving little indication that it is ready to shift away from its dovish bias anytime soon, while inflation remains subdued. We do not expect a rapid jump in yields back towards the medium-term trend in the near term, and Australian yields will continue to lag the pace of the uptrend in the higher-beta global bond markets. Net-net, a climb in yields over the next 3-6 months to (or beyond) the 200-day MA is most likely in the U.S. and Canada, and least likely in Japan, Germany and Australia (and the U.K. until the Brexit uncertainty is finally sorted out). Bottom Line: The accelerating momentum of global equities – the ultimate “leading economic indicator” – is suggesting that the current rise in global bond yields can continue. Maintain below-benchmark overall duration exposure, while staying overweight global corporate credit versus government bonds. Raise Allocations To U.S. Agency MBS Out Of Higher Quality Corporate Credit Chart 8U.S. MBS More Attractive Than High-Rated U.S. Corporates Our colleagues at our sister service, BCA Research U.S. Bond Strategy, recently initiated a recommendation to favor U.S. agency MBS versus high-rated (Aaa, Aa, A) U.S. corporate bonds.2 This week, we are adding this position to the BCA Research Global Fixed Income Strategy recommended model bond portfolio. There are three factors supporting this recommendation: 1) The absolute level of MBS spreads is competitive The average option-adjusted spread (OAS) for conventional 30-year U.S. agency MBS – rated Aaa and with the backing of U.S. government housing agencies - is currently 57bps. That is only 3bps below the spread on Aa-rated corporates and 26bps below that of A-rated credit. (Chart 8). 2) Risk-adjusted MBS spreads look very attractive Agency MBS exhibit negative convexity, with an interest rate duration that declines when yields fall. The opposite is true for positively convex investment grade corporate bonds, where the duration rises as yields decrease. This makes agency MBS look attractive on a risk-adjusted basis after the kind of big decline in bond yields seen in 2019. The average duration of the Bloomberg Barclays U.S. agency MBS index is now only 3.4 compared to 7.9 for an A-rated corporate bond. Both of those durations were around similar levels at the 2018 peak in U.S. bond yields, but now the gap between them is large. With those new durations, it would take a 17bp widening of the agency MBS spread for an investor to see losses versus duration-matched U.S. Treasuries, compared to only an 11bp widening of the A-rated corporate spread (bottom panel). This is a big change in the relative risk profile of agency MBS versus high-rated U.S. corporates compared to a year ago, making the former look relatively more attractive. That was not the case the last time agency MBS duration fell so sharply in 2015/16, since corporate bond spreads were widening (getting cheaper) at that time. Today, corporate bond spreads have been stable as corporate duration has increased and agency MBS duration has plunged, making risk-adjusted MBS spreads more attractive. Given our view that U.S. Treasury yields will continue to grind higher, favoring lower duration assets like agency MBS over higher duration investment grade corporates makes sense. Given our view that U.S. Treasury yields will continue to grind higher, favoring lower duration assets like agency MBS over higher duration investment grade corporates makes sense. 3) Macro risks are reduced Mortgage refinancing activity remains the biggest macro driver of MBS spreads, particularly in an environment when mortgage rates are falling and prepayments are accelerating. There was a pickup in refinancing activity over the past year as mortgage rates fell, but the increase has been small relative to similar-sized rate declines in the past (Chart 9). We interpret this as an indication that, after the sustained period of low mortgage rates seen in the decade since the Great Financial Crisis, most homeowners have already had an opportunity to refinance. In other words, the so-called “refi burnout“ is now quite high. Chart 9Muted Refi Activity Keeping Nominal U.S. MBS Spreads Low Beyond refinancing, the other macro risks for agency MBS are subdued. The credit quality of outstanding U.S. mortgages remains solid. The median credit (FICO) score for newly-issued mortgages remains high and stable near the post-2008 crisis highs, while mortgage lending standards have mostly been easing over that same period according to the Federal Reserve Senior Loan Officers Survey. In addition, U.S. housing activity remains solid, with the most reliable indicators like single-family new home sales and the National Association of Home Builders activity surveys all up solidly following this year’s sharp drop in mortgage rates (Chart 10). This makes MBS less risky for two reasons: a) stronger housing activity typically leads to higher mortgage rates, which limits future refi activity; and b) more robust housing demand will boost home prices, the value of the underlying collateral for MBS securities. Chart 10U.S. Housing Activity Hooking Up Chart 11Relative Value Favoring U.S. MBS Over U.S. Corporates Given the improved risk-reward balance of agency MBS versus higher-quality U.S. corporates, we recommend that dedicated fixed income investors make this shift within bond portfolios, reducing allocations to Aaa-rated, Aa-rated and A-rated corporates while increasing exposure to agency MBS. Agency MBS is part of the investment universe of our model bond portfolio. Thus, we are increasing the recommended weighting of agency MBS while reducing the exposure to U.S. investment grade corporates in the portfolio. The changes can be seen in the table on Page 11. We do not split out the investment grade exposure by credit tier in the portfolio, as we prefer to allocate by broad sector groupings (Financials, Industrials, Utilities). So we cannot implement the precise “MBS for high-rated corporates” switch in the model portfolio. There is still a case for reducing overall investment grade exposure and adding to MBS weightings, however. The relative option-adjusted spread of agency MBS and investment grade corporates typically leads the relative excess returns (over duration-matched U.S. Treasuries) between the two by around one year (Chart 11). Thus, the compression of the spread differential between MBS and corporates over the past year is signaling that agency MBS should be expected to outperform the broad U.S. investment grade universe over the next twelve months. Bottom Line: U.S. agency MBS spreads are now attractive relative to high-quality U.S. corporate bonds, both in absolute terms and on a risk-adjusted basis. Increase allocations to agency MBS, while reducing exposure to Aaa-, Aa- and A-rated U.S. corporates. Robert Robis, CFA Chief Fixed Income Strategist rrobis@bcaresearch.com   Footnotes 1 Please see BCA Research Global Fixed Income Strategy Weekly Report, “Cracks Are Forming In The Bond-Bullish Narrative”, dated October 23, 2019, available at gfis.bcaresearch.com. 2 Please see BCA Research U.S. Bond Strategy Weekly Report, “Two Themes And Two Trades”, dated October 1, 2019, available at usbs.bcaresarch.com. Recommendations The GFIS Recommended Portfolio Vs. The Custom Benchmark Index Duration Regional Allocation Spread Product Tactical Trades Yields & Returns Global Bond Yields Historical Returns

Highlights Duration: The upturn in bond yields is not yet confirmed by our preferred global growth indicators. We anticipate that a reduction in trade uncertainty during the next few months will cause our indicators to rebound. But until then, investors should view the bond sell-off as tenuous. Yield Curve: Expect modest 2/10 steepening during the next few months, as the Fed keeps rates low even as economic growth improves. Steepening will show up in real yields, not in the TIPS breakeven inflation curve. The 2/10 slope will stay in a range between 0 bps and 50 bps for the next 6-12 months. Yield Curve Strategy: The 5-year Treasury note looks expensive compared to the rest of the yield curve, and historical correlations suggest it will rise the most if the Fed delivers fewer rate cuts than are currently expected. We recommend that investors short the 5-year bullet versus a duration-matched 2/30 barbell. Await Confirmation Bond yields look like they might be bottoming. The 2-year and 10-year Treasury yields are up 10 bps and 31 bps, respectively, since the 2/10 slope briefly inverted in late August (Chart 1). We are cautiously optimistic that the growth revival getting priced into Treasury yields will materialize. However, it’s vital to note that the yield rebound is not yet confirmed by the economic data. Even timely global growth indicators like the CRB Raw Industrials index remain downbeat (Chart 1, bottom panel). If global growth measures don’t bottom soon, then Treasury yields are certain to fall back. Chart 1Yields Are Ahead Of The Data We do expect the economic data to follow bond yields higher. We noted in last week’s report that the weakness in US economic data is concentrated in survey measures (aka “soft” data), while measures of actual economic activity (aka “hard data”) are holding up well.1    For example: The ISM Manufacturing survey is below its 2016 trough, but the year-over-year growth rate in industrial production is well above 2016 levels (Chart 2, top panel). Capacity utilization also remains elevated (Chart 2, bottom panel). New orders for core capital goods are holding firm, even with CEO confidence at its lowest since 2009 (Chart 2, panel 2). Employment growth remains strong, despite the employment component of the ISM Non-Manufacturing survey being just above the 50 boom/bust line (Chart 2, panel 3). Chart 2Will "Soft" Data Rebound? Our interpretation of the divergence is that uncertainty about the US/China trade war is weighing on sentiment and holding survey measures down. If that uncertainty is removed, survey measures will quickly rebound and converge with the “hard” data. On that front, we think it’s very likely that trade uncertainty diminishes during the next few months. The US and China have already agreed to an informal “phase one deal” that will require China to buy $40-$50 billion of US agricultural goods while the US delays the October 15 tariff hike. Odds are that President Trump will also delay the planned December 15 tariff hike and probably roll back some existing tariffs.2 The reason is that while Trump’s overall approval rating has been consistently low; until recently, he had been receiving high marks for his handling of the economy (Chart 3). But his economic approval rating took a tumble this summer and, as we head toward the 2020 election, he desperately needs an economic boost and/or policy victory to push up his numbers. We already see some tentative signs of a rebound in the regional Fed manufacturing surveys. A tactical retreat on trade should improve sentiment and cause survey data to move higher, alongside bond yields. And in fact, we already see some tentative signs of a rebound in the regional Fed manufacturing surveys (Chart 4). October figures are out for the New York, Philadelphia, Richmond, Kansas City and Dallas surveys, and they have all diverged positively from the national ISM. Chart 3It's Trump's Economy Chart 4Some Optimism From Regional Surveys Bottom Line: The upturn in bond yields is not yet confirmed by our preferred global growth indicators. We anticipate that a reduction in trade uncertainty during the next few months will cause our indicators to rebound. But until then, investors should view the bond sell-off as tenuous. Yield Curve: Macro Drivers We noted in the first section that the 2/10 Treasury slope has steepened sharply since it briefly broke below zero in late August. In this section, we consider whether this 2/10 steepening might continue. To do this we run through the main macro drivers of the yield curve. The Fed Funds Rate Traditionally, there is a very tight correlation between the fed funds rate and the slope of the curve (Chart 5). Fed tightening puts upward pressure on the curve’s front-end relative to the back-end, leading to a bear-flattening. Conversely, Fed easing drags the front-end down relative to the long-end, leading to bull-steepening. Chart 5The Fed's Yield Curve Control The traditional pattern broke down between 2009 and 2015 when the fed funds rate was pinned at zero. This period saw many episodes of bear-steepening and bull-flattening. But since the funds rate has been off zero, the traditional correlation has begun to re-assert itself. Our base case outlook calls for one more 25 bps rate cut tomorrow, followed by an extended on-hold period. This scenario might be expected to impart some mild steepening pressure to the curve, except for the fact that the front-end is already priced for 53 bps of easing during the next 12 months, significantly more than we expect. Our base case outlook calls for one more 25 bps rate cut tomorrow, followed by an extended on-hold period. If our base case scenario is incorrect, and growth continues to deteriorate, forcing the Fed to cut rates all the way back to zero. Then we would expect some initial bull-steepening, followed by bull-flattening as the funds rate approaches the zero bound. Wage Growth Wage growth is another excellent yield curve indicator, mainly because it helps determine the direction of the fed funds rate. Stronger wage growth causes the Fed to tighten and the curve to flatten. On the flipside, wage growth is a less effective indicator during Fed easing cycles, when it tends to lag changes in the funds rate (Chart 6). In fact, while wage growth is tightly correlated with the 2/10 slope, it lags changes in the slope by about 12 months (Chart 6, panel 2). Chart 6Wages Lead Tightening, But Lag Easing The upshot is that if the economy heads toward recession, then wage growth will not be a timely indicator of Fed rate cuts. However, if recession is avoided and wages continue to accelerate (Chart 6, bottom 2 panels), strong wage growth will limit how accommodative the Fed can be as it seeks to re-anchor inflation expectations. As such, persistently strong wage growth will limit the amount of curve steepening that can occur. Inflation Expectations The Fed’s need to re-anchor inflation expectations in a range consistent with its target is the main reason to forecast curve steepening. At present, the 10-year TIPS breakeven inflation rate is a mere 1.66%, well below the 2.3%-2.5% range that the Fed would consider “well anchored”. One might conclude that if the Fed succeeds in driving this rate higher, it will impart significant steepening pressure to the curve. However, we must also note that the 2-year TIPS breakeven inflation rate is even lower than the 10-year rate (Chart 7). Given our view that long-dated inflation expectations adapt only slowly to the actual inflation data, we would expect both the 2-year and 10-year breakevens to rise in tandem, exerting some modest flattening pressure on the curve.3 Chart 7Any Steepening Will Come From Real Yields Ironically, if the Fed is successful in re-anchoring long-dated inflation expectations, we expect it will cause the yield curve to steepen, but through its impact on real yields. At present, the 2-year and 10-year real yields are 0.37% and 0.14%, respectively. The act of holding rates steady for long enough to re-anchor inflation expectations will exert downward pressure on the 2-year real yield, while the 10-year real yield will rise in response to an improved growth outlook. The Fed’s goal of re-anchoring inflation expectations will likely lead to some curve steepening, but through the real component of yields, not the inflation component. The Neutral Rate The neutral rate – the fed funds rate that is neither inflationary nor deflationary – is a major wild card when it comes to the yield curve. Right now, the median Fed estimate calls for a neutral rate of 2.5%, while the market is pricing-in an even lower rate of 2%, at least according to the 5-year/5-year forward Treasury yield (Chart 8). Neutral rate estimates have been revised lower during the past few years, exerting significant flattening pressure on the yield curve. In theory, if we reach an inflection point where neutral rate estimates are revised higher, it would lead to substantial curve steepening. One thing to watch to help predict movement in neutral rate estimates is the gold price.4 Gold performs well when the market perceives monetary policy as increasingly accommodative, either because the Fed is cutting rates or because the assumed neutral rate is rising. The 2013 drop in gold foreshadowed downward revisions to the Fed’s neutral rate estimate (Chart 8, bottom panel). A further increase in gold, especially once the Fed stops cutting rates, would send a strong signal that current neutral rate estimates are too low. Monetary policy arguably exerts its greatest economic impact through the housing market. Investors can also watch the housing market for clues about the neutral rate. Monetary policy arguably exerts its greatest economic impact through the housing market. If housing activity starts to wane, it can be a strong signal that interest rates are too high. Last year, housing activity started to flag once the mortgage rate moved above 4% (Chart 9). If 4% proves to be the ceiling on mortgage rates, it would mean that the Fed’s current neutral rate estimate is roughly correct. However, home prices have moderated since last year, and new construction has started to focus more on the low-end of the market, where supply remains scarce.5 This shift in focus from homebuilders has caused the price of new homes to fall considerably (Chart 9, bottom panel), a supply side re-adjustment that could make the housing market more resilient in the face of higher rates. Chart 8Tracking The Neutral Rate: Gold Chart 9Tracking The Neutral Rate: Housing An upward re-assessment of the neutral rate would impart steepening pressure to the yield curve, but only if it occurs quickly, before the Fed has time to deliver offsetting rate hikes. However, we think it’s more likely that any increase in neutral rate estimates will occur gradually, alongside Fed tightening. In that case, a roughly parallel upward shift in the yield curve would be the most likely outcome. Verdict Considering all of the above factors, we would look for some modest 2/10 curve steepening during the next few months. The steepening will be driven by the Fed’s desire to re-anchor long-dated inflation expectations, a desire that will result in them keeping rates steady (apart from one more cut tomorrow), even as economic growth improves. As noted above, this steepening will show up in real yields, not in the TIPS breakeven inflation curve. That being said, strong wage growth and overly dovish market rate cut expectations will ensure that any steepening is well contained. We expect the 2/10 slope to stay in a range between 0 bps and 50 bps for the next 6-12 months. Yield Curve Strategy Chart 10Treasury Yield Curve When thinking about how to position a Treasury portfolio for our expected yield curve outcome, we first look at the value proposition offered by different Treasury maturities. Chart 10 shows the Treasury yield curve, and also each maturity’s 12-month rolling yield. The rolling yield is simply the combination of each maturity’s 12-month yield income and the price impact of rolling down the curve. It can be thought of as the return you would earn holding each bond for 12 months in an unchanged yield curve environment. The first thing that sticks out in Chart 10 is that the 5-year note offers poor value. We also note that the curve steepens sharply beyond the 5-year maturity point, so maturities greater than 5 years benefit a lot from rolldown. The simple intuition from Chart 10 is confirmed by our butterfly spread models.6  Chart 11shows that the 5-year bullet looks very expensive relative to a duration-matched barbell portfolio consisting of the 2-year and 10-year notes. In fact, with only a few exceptions, bullets are expensive relative to barbells across the entire Treasury curve (see Appendix). Chart 11Bullets Are Very Expensive All else equal, bullets tend to outperform barbells when the yield curve steepens. However, given current valuations, it would take a lot of steepening for bullets to outperform barbells during the next few months. Chart 12Yield Curve Correlations Further, Chart 12 shows that the front-end of the yield curve – out to about the 5-year/7-year point – tends to steepen when our 12-month discounter rises, while the long-end of the curve – beyond the 7-year point – tends to flatten. Given that our 12-month discounter is currently -53 bps, meaning that the market is priced for 53 bps of rate cuts during the next year, we expect it will rise during the next few months. This should exert the most upward pressure on the 5-year/7-year part of the curve. We have been recommending that investors play the curve by going long a 2/30 barbell and shorting the 7-year bullet. But given the significant rolldown advantage in the 7-year compared to the 5-year, we amend that recommendation this week. We now recommend that investors short the 5-year bullet and go long a duration-matched barbell consisting of the 2-year and 30-year maturities. Bottom Line: The 5-year Treasury note looks expensive compared to the rest of the yield curve, and historical correlations suggest it will rise the most if the Fed delivers fewer rate cuts than are currently expected. We recommend that investors short the 5-year bullet versus a duration-matched 2/30 barbell. Appendix Table 1Butterfly Strategy Valuation: Raw Residuals In Basis Points (As of October 25, 2019) Table 2Butterfly Strategy Valuation: Standardized Residuals (As of October 25, 2019) Ryan Swift U.S. Bond Strategist rswift@bcaresearch.com Footnotes 1 Please see U.S. Bond Strategy Weekly Report, “Crisis Of Confidence”, dated October 22, 2019, available at usbs.bcaresearch.com 2 For further details on BCA’s outlook for US/China trade negotiations please see Geopolitical Strategy Weekly Report, “How Much To Buy An American President?”, dated October 25, 2019, available at gps.bcaresearch.com 3 For further details on how inflation expectations adapt to the actual inflation data please see U.S. Bond Strategy Weekly Report, “Adaptive Expectations In The TIPS Market”, dated November 20, 2018, available at usbs.bcaresearch.com 4 Please see U.S. Bond Strategy Weekly Report, “A Signal From Gold?”, dated May 1, 2018, available at usbs.bcaresearch.com 5 Please see U.S. Bond Strategy Weekly Report, “The Long Awkward Middle Phase”, dated July 2, 2019, available at usbs.bcaresearch.com 6 For details on our butterfly spread models please see U.S. Bond Strategy Special Report, “Bullets, Barbells And Butterflies”, dated July 25, 2017, available at usbs.bcaresearch.com Fixed Income Sector Performance Recommended Portfolio Specification

The once-reliable negative correlation between gold and the USD was indefinitely suspended beginning in 4Q18 by the pervasive economic uncertainty we identified last week as the culprit holding back global oil demand growth via a super-charged dollar.1 This uncertainty is most pronounced in the U.S. and Europe vis-à-vis gold, and partly explains the performance of safe havens, particularly the USD, which has soared to new heights on a trade-weighted goods basis, and gold (Chart of the Week). So far, gold has held its ground after breaking above $1,500/oz from the low $1,200s in mid-2018, indicating investors are much more concerned about economic risks arising from economic policy uncertainty than inflation and other diversifiable risks gold typically hedges (Charts 2A, 2B). Cyclically we remain positive on gold prices on the back of a lower dollar and rising inflation pressure in the U.S. Chart of the WeekDemand For Safe Havens Soars As Economic Policy Uncertainty Rises Economic policy uncertainty in Europe and the U.S. supports gold prices. Even so, we are putting a $1,450/oz stop-loss on our long gold portfolio hedge to cover tactical risks showing up in our technical indicators. In addition, as is the case with oil demand, if the ceasefire we are expecting in the Sino-U.S. trade war materializes in 1H20 and limited trade – mostly in ags and energy – is forthcoming, demand for safe-haven assets could weaken gold prices at the margin. Fiscal and monetary stimulus globally also could revive economic growth and commodity demand, pushing global yields higher, which would put negative pressure on gold at the margin, as well, given the high correlation between real rates and gold prices. Chart 2AU.S., Euro Economic Uncertainty Correlated With Gold Prices Chart 2BU.S., Euro Economic Uncertainty Correlated With Gold Prices Highlights · Energy: Overweight. Saudi Arabia and Kuwait are on the verge of signing an historic pact to restart production from the Neutral Zone. Kuwait expects to sign the pact within 30 to 45 days. Potential production from the jointly operated fields – Khafji and Wafra – is estimated at ~ 500k b/d. Ramping up production at the Wafra field could take up to 6 months. Importantly, both countries are expected to respect their production quota mandated under the OPEC 2.0 agreement expiring in 1Q20.2 Separately, Chevron’s waiver to operate in Venezuela was extended for three months from the Trump administration this week. · Base Metals: Neutral. Chile copper production was up 1% and 11% y/y in July and August, according to the World Bureau of Metal Statistics. Earlier this week, the Union of workers at Chile’s Escondida copper mine – the world’s largest – held a strike in support of broader protests sparked by the increase of metro fare last Friday. Chile’s President suspended the fare hike on Saturday, but the protests are still ongoing and have now caused 15 deaths.3 · Precious Metals: Neutral. The gold/silver ratio fell 9% since July 2019. Our tactical long spot silver recommendation is up 3% since inception in August 2019, and our strategic long gold position is up 21%. Cyclically, we remain positive on both silver and gold prices, more on this below. A tactical pullback is possible; money managers have started liquidating some of their long gold positions, dropping by 67k contracts from September levels, according to CFTC data. · Ags/Softs: Underweight. According to USDA data, corn and soybean harvest are 30% and 46% complete, lagging behind their respective 47% and 64% five-year average pace. For corn, the USDA rates 54% of the U.S. crop good or excellent, vs. 66% a year earlier. For beans, 56% of the crop is rated good or excellent, vs. 68% last year. Separately, China announced waivers allowing up to 10mm MT of U.S. soybeans to be imported by domestic and international crushing concerns. The waivers are in place until March 2020. Feature The once-reliable negative correlation between gold and the USD will remain muted over the short-term tactical horizon – 3 to 6 months – as economic policy uncertainty continues to stoke global demand for safe havens.4 The once-reliable negative correlation between gold and the USD will remain muted over the short-term. This can be seen in the elevated correlations between the USD’s broad trade-weighted goods index with the Baker-Bloom-Davis (BBD) Economic Policy Uncertainty (EPU) indexes for the U.S. and Europe (Chart 3).5 Rising economic uncertainty – particularly since 4Q18 – has created a rare environment in which both the USD and gold trended up simultaneously and continue to move in the same direction. The implication of this is that gold’s correlation with both the USD and EPU is weaker than before because economic policy uncertainty now is positively correlated with the dollar. Chart 3Strong USD, EPU Correlation Chart 4Correlation of Daily Gold, USD Returns Also Moving Sharply Higher There is a possibility global policy uncertainty could be reduced later this year if the U.S. and China can agree on a trade ceasefire... The typically negative correlation between daily returns of gold and the USD also is weakening, moving toward positive territory (Chart 4), as both the USD and gold trend higher simultaneously (Chart 5).   Chart 5Gold and USD Levels Trending Higher ...If this occurs, the risk premium supporting gold will ease, and markets will once again turn their attention to possible inflationary consequences of the global stimulus. Our short-term technical indicator is signaling an overbought gold market (Chart 6), and our fair-value model indicates gold should be trading ~ $1,450/oz (Chart 7). The latter signal off our fair-value model is less concerning, given the demand for safe-haven assets like the USD and gold now dominates gold’s typical drivers. Chart 6Gold Technical Indicators Signal Overbought Market Chart 7High USD Correlation Throws Off Fair-Value Model However, to be on the safe side, we are placing a $1,450/oz stop-loss on our long-term gold position, which as of Tuesday’s close was up 21% since inception on May 14, 2017. This is a precautionary measure, which recognizes the possibility global policy uncertainty could be reduced later this year if the U.S. and China can agree on a trade ceasefire, and global fiscal and monetary policy are successful in reviving EM income growth, which would revive commodity demand generally, pushing up global bond yields. If this occurs, the risk premium supporting gold will ease, and markets will once again turn their attention to possible inflationary consequences of the global stimulus. During that period, the monetary and fiscal aggregates we track as explanatory variables for gold prices will reassert themselves as the dominant drivers of gold prices (see below). This could produce tension between a falling USD and rising real rates as growth picks up, which would send us to a risk-neutral setting re gold, given the current high correlation between gold and real rates, which should remain strong until the Fed starts hiking rates again, most likely in 2020 (Chart 8). This is part of the reason we are including the stop-loss at $1,450/oz for our existing gold position: During this risky period going into 1H20 economic uncertainty could dissipate, and real rates could rise. Although the USD depreciation would mute these effects, rising real rates would be a risk to gold prices Chart 8Rising Real Rates Could Weaken Gold Prices Economic Uncertainty Dominates Gold’s Fundamentals At present, economic policy uncertainty overwhelms the other factors we typically use as explanatory variables when modeling gold prices. In Table 1, we collect the variables we consider when assessing gold’s fair value. At present, economic policy uncertainty overwhelms the other factors we typically use as explanatory variables when modeling gold prices. This variable broadly falls in the geopolitical risk we regularly account for in our analysis of gold markets. Table 1Fundamental And Technical Gold-Price Drivers If the uncertainty captured by the EPU indexes is resolved, we would expect the dollar to fall and the negative gold-USD correlation to reassert itself and strengthen. Checking off each of these groups, we see: · Demand for inflation hedges remaining muted over the short-term, as inflationary pressures remain weak. In line with our House view, however, we do expect inflation could move higher toward the end of next year and overshoot the Fed’s 2% target for the U.S. This would support gold prices. · Monetary and financial aggregates are working less well as explanatory variables for gold prices in a market dominated by economic policy uncertainty. The USD-gold correlation continues to be disrupted by strong demand for safe-haven assets. As inflation picks up next year, we expect nominal bond yields to rise. Real rates, however, could remain subdued, as long as the Fed is not aggressively raising rates to get out ahead of a possible revival of inflation (Chart 9). Later in 2020, the correlation between rates and gold should be supportive for gold prices – the correlation fades when the Fed tightens, which creates a demand for safe-haven assets like gold. All the same, an increase in real rates would be a risk to gold prices in 1H20. · At present, demand for portfolio-diversification assets via safe-haven assets is a powerful force in gold’s price evolution. It is worthwhile pointing out, however, that if global economic uncertainty is resolved and global growth does rebound, recession fears will diminish, thus reducing the marginal impact of geopolitical shocks. On the other hand, if the uncertainty captured by the EPU indexes is resolved, we would expect the dollar to fall and the negative gold-USD correlation to reassert itself and strengthen. Should that happen, short-term volatility in gold will rise (Chart 10). Chart 9Bond Yields Should Rise As Inflation Revives In 2H20 Chart 10Investors Expect Large Positive Moves In Gold And Silver Prices Investment Implications As India’s and China’s economic growth picks up, we expect income to grow, which would support physical gold demand in EM countries. Over a tactical horizon – i.e., 3 to 6 months – we expect global economic policy uncertainty to remain elevated. Going into 2020 – and particularly in 2H20 – we expect the USD to weaken on the back of global monetary accommodation policies and increased fiscal stimulus. We also are expecting a ceasefire in the Sino-U.S. trade war, which will revive trade somewhat and support EM income growth and commodity demand. These assumptions, which we’ve laid out in previous research, will be bullish cyclical factors supporting commodities generally. Bottom Line: A ceasefire in the Sino-U.S. trade war, coupled with global fiscal and monetary stimulus, will reduce some of the economic uncertainty dogging aggregate demand. This should be apparent in the data in 1H20. As a result, we continue to expect rising EM income growth to be cyclically bullish for commodities generally. This will allow inflation to revive – again, assuming the Fed does not become aggressive in raising rates. Chart 11EM Income Growth Will Support Demand For Gold Net, this will be bullish for gold: As India’s and China’s economic growth picks up, we expect income to grow, which would support physical gold demand in EM countries (Chart 11).   Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Hugo Bélanger Senior Analyst Commodity & Energy Strategy HugoB@bcaresearch.com   Footnotes 1               Please see our report entitled “Policy Uncertainty Lifts USD, Stifles Global Oil Demand Growth,” published October 17, 2019. It is available at ces.bcaresearch.com. 2              Please see “Kuwait Sees Neutral Zone Oil Pact With Saudis Within 45 Days,” published by Bloomberg.com on October 19, 2019. 3              Please see “Chile lawmakers call for social reforms as protests mount,”  published by reuters.com on October 22, 2019. 4              We expect a ceasefire in the Sino-US trade war to be announced in 1H20, which will defuse – but not eliminate – an important risk for global growth in our analytical framework.  We expect this will allow the relationship between the USD and gold to move back to its previous equilibrium in 1Q20 or 2Q20. 5              For more info on the Baker-Bloom-Davis index, please see policyuncertainty.com   Investment Views and Themes Recommendations Strategic Recommendations Tactical Trades TRADE RECOMMENDATION PERFORMANCE IN 2019 Q3 Commodity Prices and Plays Reference Table Trades Closed in 2019 Summary Of Trades Closed In 2018 Summary Of Trades Closed In 2017 Summary Of Trades Closed In 2016

Highlights Shifting Trends: The factors that have driven bond yields lower throughout 2019 – slowing growth, rising uncertainty, demand for safe assets and dovish monetary policy expectations – have all started to turn in a more bond-bearish direction. Duration & Country Allocation Strategy: Maintain a moderate below-benchmark stance on aggregate bond portfolio duration. Favor lower-beta countries with central banks that are more likely to stay relatively dovish as global yields drift higher, like core Europe, Australia and Japan. Credit Allocation Strategy: Stay overweight corporate bonds versus government debt in the U.S. and Europe, both for investment grade and high-yield. Maintain just a neutral stance on EM USD-denominated spread product, but look to upgrade if global growth improves further and the USD begins to weaken. Feature Chart of the WeekBond Yields Sniffing A Turn In Global Growth? It has been fifty days (and counting) since the 2019 low for the benchmark 10-year U.S. Treasury yield was reached on September 3. The year-to-date low for the benchmark 10-year German bund yield was seen six days before that on August 28. Yields have risen by a healthy amount since those dates, up +34bps and +37bps for the 10yr Treasury and Bund, respectively. This has occurred despite the significant degree of bond-bullish pessimism on global growth and inflation that can be found in financial media reporting and investor surveys. The fact that yields are now steadily moving away from the lows suggests that the 2019 narrative for financial markets – slowing global growth, triggered by political uncertainty and the lagged impact of previous Fed monetary tightening and China credit tightening, forcing central banks to turn increasingly more dovish – is no longer correct. If that is true, yields have more near-term upside as overbought government bond markets begin to “sniff out” a bottoming out of global growth momentum (Chart of the Week). In this Weekly Report, we take a look at the changing state of the factors that fueled the sharp decline in bond yields in 2019. We follow that up with a review of all our current recommended investment positions on duration, country allocation and spread product allocations in light of recent developments. We conclude that maintaining a below-benchmark duration exposure, while favoring lower-beta countries in sovereign debt and overweighting corporate debt in the U.S. and Europe, is the most appropriate fixed income strategy for the next 6-12 months. The timing of the bottoming of yields in the major developed markets (DM) should not be surprising, given the more bond-bearish turn of reliable leading directional yield indicators. Yields Are Rising At The Right Time, For The Right Reasons Chart 2Bond-Bullish Growth & Inflation Factors Are Turning The timing of the bottoming of yields in the major developed markets (DM) should not be surprising, given the more bond-bearish turn of reliable leading directional yield indicators. The diffusion index of our global leading economic indicator (LEI), which leads the real (ex-inflation expectations) component of DM bond yields by twelve months, is at an elevated level (Chart 2). At the same time, the slowing of the annual rate of growth in the trade-weighted U.S. dollar, which leads 10-year DM CPI swap rates by around six months, is signaling that bond yields have room to increase from the inflation expectations side. Finally, the rising trend of positive data surprises for the major DM countries is also pointing to higher yields. Breaking it down at the country level, the pickup in DM 10-year bond yields since the 2019 lows has been widespread (Charts 3 & 4). The range of yield increases is as low as +16bps in Japan, where the Bank of Japan (BoJ) is pursuing a yield target, to +46bps in Canada where the economy and inflation are both accelerating. Chart 3Pricing Out Some Expected Rate Cuts … Chart 4… Across All Developed Markets The increase in yields has also occurred alongside reduced expectations for easier monetary policy. Our 12-month discounters, which measure the expected change in short-term interest rates priced into Overnight Index Swap (OIS) curves, show that markets have partially priced out some (but not all) expected rate cuts in all major DM countries. The Three Things That Have Changed For Global Bond Markets So what has changed to trigger a reduction in rate cut expectations and an increase in global yields? The bond-bullish narrative that we refer to in the title of this report can be broken down into the following three elements, which have all turned recently: Slowing global growth (now potentially bottoming) Chart 5Global Growth Bottoming Out Current global growth is still trending lower, when looking at measures like manufacturing PMIs or sentiment surveys like the global ZEW index. Forward-looking measures like our global LEI, however, have been moving higher in recent months, suggesting that a bottom in the PMIs may soon unfold (Chart 5). We investigated that improvement in our global LEI in a recent report and concluded that the move higher was focused almost exclusively within the emerging market (EM) sub-components that are most sensitive to improving global growth.1 This fits with the improvement shown in the OECD LEI for China, a bottoming of the annual growth rate of world exports, and the general acceleration of global equity markets – the classic leading economic indicator. Rising political uncertainty (now potentially fading) The U.S.-China trade war (including the implications for the upcoming 2020 U.S. presidential election) and the U.K. Brexit saga have been the main sources of bond-bullish political uncertainty over the past several months. Yet recent developments have helped reduce the odds of the most negative tail risk outcomes, providing a bit of a boost to global bond yields. The U.S. and China have agreed (in principle) to a “phase one” trade deal that, at a minimum, lowers the chances of a further escalation of the trade dispute through higher tariffs. Meanwhile, the momentum has shifted towards a potential final Brexit agreement between the U.K. and European Union that can avoid an ugly no-deal outcome. Our colleagues at BCA Research Geopolitical Strategy believe that developments are likely to continue moving away from the worst-case scenarios, given the constraints faced by policymakers.2 U.S. President Donald Trump is now in full campaign mode for the 2020 elections and needs a deal (of any kind) to deflect criticism that his trade battle with China is dragging the U.S. economy into recession. Already, there has been a sharp decline in income growth for workers in swing states that could vote for either party’s candidate in next year’s election (Chart 6). Trump cannot afford to lose voters in those states, many of which are in the U.S. industrial heartland (i.e. Ohio, Michigan) that helped put him in the White House. In other words, he is highly incentivized to turn down the heat on the trade war or else face a potential loss next November. While these political uncertainties have not been fully resolved by these latest developments, the shift in momentum away from worst-case scenarios has likely been enough to reduce the safe-haven bid for DM government bonds, helping push yields higher. Meanwhile, China is facing a slowing economy and rising unemployment, but with reduced means to fight the downtrend given high private sector debt that has impaired the typical response between easier monetary conditions and economic activity (Chart 7). While the Chinese government does not want to be seen as caving in to U.S. pressure on trade policy, its desire to maintain social stability by preventing a further rise in unemployment from the trade war provides a powerful incentive to try and ratchet down tensions with the U.S. Chart 6Political Reasons For Trump To Retreat On Trade In the U.K., a no-deal Brexit is an economically painful and politically unpopular outcome that would severely damage the re-election chances of Prime Minister Boris Johnson and his Conservative party. Thus, even a hard-line Brexiteer like Johnson must respond to the political constraints forcing him to try and get a Brexit deal done (Chart 8). Chart 7Economic Reasons For China To Retreat On Trade Chart 8Political Reasons To Retreat On A No-Deal Brexit While these political uncertainties have not been fully resolved by these latest developments, the shift in momentum away from worst-case scenarios has likely been enough to reduce the safe-haven bid for DM government bonds, helping push yields higher. Bull-flattening pressure on yield curves (now turning into moderate bear-steepening) The final leg down in bond yields in August had a technical aspect to it, fueled by the demand for duration and convexity from asset-liability managers like European pension funds and insurance companies. Falling yields act to raise the value of liabilities for that group of investors, forcing them to rapidly increase the duration of their assets to match the duration of their liabilities (the technique used to limit the gap between the value of assets and liabilities). That duration increase is carried out by buying government bonds with longer maturities (and higher convexity), but also through the use of interest rate derivatives like long maturity swaps and swaptions. The end result is a bull flattening of yield curves (both for government bonds and swaps) and a rise in swaption volatility (i.e. the price of swaptions). Those dynamics were clearly in play in August after the shocking imposition of fresh U.S. tariffs on Chinese imports early in the month. Bond and swaption volatilities spiked, and bond/swap yield curves bull-flattened, in both Europe and the U.S. (Chart 9). That effect only lasted a few weeks, however, and volatilities have since declined and curves have steepened. This suggests that the “convexity-buying” effect has run its course and is now starting to work in the opposite direction, with asset-liability managers looking to reduce the duration of their assets as higher yields lower the value of their liabilities. This is putting some upward pressure on longer-maturity global bond yields. Chart 9Signs Of Reduced Convexity-Related Bond Buying Chart 10Bull-Flattening Yield Curve Pressures Easing Up A Bit Chart 11Fed & ECB Actions Should Help Steepen Up Curves The steepening seen so far must be put in context, however, as yield curves remain very flat across the DM world (Chart 10). Term premia on longer-term bonds remain very depressed, although those should start to increase as global growth stabilizes and the massive safe-haven demand for global government debt begins to dissipate. Some pickup in inflation expectations would also help impart additional bear-steepening momentum to yield curves – a more likely result now that the Fed and ECB have both cut interest rates and, more importantly, will start provide additional monetary easing by expanding their balance sheets (Chart 11). Bottom Line: The factors that have driven bond yields lower throughout 2019 – slowing growth, rising uncertainty, demand for safe assets and dovish monetary policy expectations – have all started to turn in a more bond-bearish direction. Reviewing Our Recommended Bond Allocations In light of these shifting global trends described above, the fixed income investment implications are fairly straightforward: Yields are rising around the world, suggesting that the current move is a shift higher driven by non-country-specific factors like more stable future global growth prospects. Duration: A moderate below-benchmark overall duration stance is warranted for global fixed income portfolios, with yields likely to continue drifting higher over at least the next six months. A big surge in yields is unlikely, as central banks will need to see decisive evidence that global growth is not only bottoming, but accelerating, before shifting away from the current dovish bias. Given the reporting lags in the economic data, such evidence is unlikely to appear until the first quarter of 2020 at the earliest. Yet given how flat yield curves are across the DM government bond markets, the trajectory of forward rates is quite stable relative to spot yield levels, making it much easier to beat the forwards by positioning for even a modest yield increase. Country Allocation: Yields are rising around the world, suggesting that the current move is a shift higher driven by non-country-specific factors like more stable future global growth prospects. In that case, using yield betas to the “global” bond yield is a good way to consider country allocation decisions within a fixed income portfolio. We looked at those yield betas in an August report, using Bloomberg Barclays government bond index data for the 7-10 year maturity buckets of individual countries and the Global Treasury aggregate (Chart 12).3 The rolling 3-year betas were highest in the U.S. and Canada, making them good countries to underweight within a global government bond portfolio in a rising yield environment. The yield betas were lowest in Japan, Germany and Australia, making them good overweight candidates. The U.K. was a unique case of having a relatively high historical yield beta prior to the 2016 Brexit referendum and a lower yield beta since then - making the U.K. allocation highly conditional on the resolution of the Brexit uncertainty. Spread Product Allocation: The backdrop described in this report, where global growth is bottoming out but where central banks maintain a dovish bias, is a perfect sweet spot for global spread product like corporate bonds and Peripheral European government debt. Thus, an overweight stance on overall global spread product versus governments is warranted. The backdrop described in this report, where global growth is bottoming out but where central banks maintain a dovish bias, is a perfect sweet spot for global spread product like corporate bonds and Peripheral European government debt. With regards to our current strategic fixed income recommendations and model bond portfolio allocations, we already have much of the positioning described above in place. We are below-benchmark on overall duration, underweight higher-beta U.S. Treasuries; overweight government bonds in lower-beta Germany, France, Japan and Australia (Chart 13); overweight investment grade corporate bonds in the U.S., euro area and U.K.; and overweight high-yield corporate bonds in the U.S. and euro area. Chart 12Favor Lower-Beta Government Bond Markets There are areas where our positioning could change, however. Chart 13Lower-Beta Laggards Should Start To Outperform In terms of government bonds, we are currently overweight the U.K. and neutral Canada. A final Brexit deal would justify a downgrade of Gilts to at least neutral, if not underweight, as the Bank of England has signaled that rate hikes would be justified if the Brexit uncertainty was resolved. A downgrade of higher-beta Canadian government debt to underweight could also be justified, although the Bank of Canada is not signaling that a change in monetary policy (in either direction) is warranted. For now, we will hold off on any change to our U.K. stance, as it is now likely that there will be another extension of the Brexit deadline beyond October 31. As for Canada, we remain neutral for now but will revisit that stance in an upcoming Weekly Report. With regards to spread product, we are only neutral EM USD-denominated sovereign and corporate debt, as well as Spanish sovereign bonds; and underweight Italian government debt. An EM upgrade to overweight would require two things that are not yet in place: a weaker U.S. dollar and accelerating Chinese economic growth. Chart 14Stay Overweight Corporates In The U.S. & Europe As for Peripheral governments, we have preferred to be overweight European corporate debt relative to sovereign bonds in Italy and Spain. The recent powerful rally in the Periphery, however, has driven the spreads over German bunds in those countries down to levels in line with corporate credit spreads (Chart 14). We will maintain these allocations for now, but will investigate the relative value proposition between euro area Peripheral sovereigns and corporates in an upcoming report. Bottom Line: Maintain a moderate below-benchmark stance on aggregate bond portfolio duration. Favor lower-beta countries with central banks that are more likely to stay relatively dovish as global yields drift higher, like core Europe, Australia and Japan. Stay overweight corporate bonds versus government debt in the U.S. and Europe, both for investment grade and high-yield. Maintain just a neutral stance on EM USD-denominated spread product, but look to upgrade if global growth improves further and the USD begins to weaken. Robert Robis, CFA Chief Fixed Income Strategist rrobis@bcaresearch.com   Footnotes 1 Please see BCA Research Global Fixed Income Strategy Weekly Report, “What Is Driving The Improvement In The BCA Global Leading Economic Indicator?”, dated October 2, 2019, available at gfis.bcaresearch.com. 2 Please see BCA Research Geopolitical Strategy Weekly Report, “Five Constraints For The Fourth Quarter”, dated October 11, 2019, available at gps.bcaresearch.com. 3 Please see BCA Research U.S. Bond Strategy/Global Fixed Income Strategy Weekly Report, “Where’s The Positive Carry In Bond Markets?", dated August 20, 2019, available at usbs.bcaresearch.com and gfis.bcaresearch.com. Recommendations The GFIS Recommended Portfolio Vs. The Custom Benchmark Index Duration Regional Allocation Spread Product Tactical Trades Yields & Returns Global Bond Yields Historical Returns

ハイライト デュレーション: 貿易に関する不確実性が調査による経済センチメント指標を押し下げている一方で、実体経済のハードデータは比較的堅調である。今後2か月の間に貿易戦争が落ち着き始めると見込んでいるため、調査データは反発し、債券利回りは上昇するだろう。 フェド: インフレ期待が低い状況では、フェドは金融環境を緩和的に維持し、景気回復が順調に進むことを確保しなければならない。これは、フェドが市場の期待に応じて来週利下げを行うことを意味する。その先については、成長が十分に改善するため、さらなる利下げは不要になると予想している。 ネガティブ・コンベクシティ: 今年の大幅な利回り低下は、リスク調整後の観点でネガティブ・コンベクシティ資産の魅力を高めた。投資家はインベストメント・グレードよりもハイイールドを優先すべきである。また、Aaa、Aa、A 格の社債よりもエージェンシーMBSを優先すべきである。 特集 チャート 1 ハードデータがもたらすポジティブなサプライズ Positive Surprises Driven By The Hard Data Positive Surprises Driven By The Hard Data 今後2か月は米国経済にとって重要である。企業側と消費者側の両方で示されるセンチメント指標は景気後退を示すシグナルを発している。しかし、実際の経済活動を示す指標はより穏やかな状況を描いている（チャート 1）。この「ハード」データと「ソフト」データの乖離は、今後数か月以内に解消される可能性が高く、その解消の方向性は米中貿易交渉の結果が大きく左右するだろう。 「ハード」と「ソフト」データについて 最近は投資家向けに大量の経済データが公開されているが、これらは一般的に「ソフト」か「ハード」のいずれかに分類できる。着工件数や小売売上高のような実際の経済活動を測る指標を我々は「ハード」データと呼ぶ。これらは国のGDP算出に使われる種類の指標である。一方、企業や消費者に対して活動が改善しているか悪化しているか、将来に対してより楽観的か悲観的かを尋ねる調査指標を「ソフト」データと呼ぶ。PMI調査や消費者信頼感の指標などがソフトデータの例である。 どちらの種類の指標も価値がある。ソフトデータは通常タイムリーであり、ハードデータより先行することが多い。しかし、その分フリップフロップ（振れ）を起こしやすい。ハードデータはより信頼性が高い傾向にあるが、実行可能な先行時間を必ずしも提供するとは限らない。 ソフトデータとハードデータは全く異なるシグナルを発している。 現時点では、ソフトデータとハードデータは非常に異なるシグナルを発している。消費者側では、コア小売売上高は堅調に前年同期比4.8%のペースで拡大しているが、消費者信頼感は過去1年で低下している（チャート 2）。 企業側では、ISM製造業PMIは9月に47.8と、2009年以来の最低水準に達した。しかし鉱工業生産は過去1年でわずか0.1%の減少にとどまっている。鉱工業生産の成長は2015/16期にISMがより高い水準にあった際に-4%まで低下したことがある（チャート 3）。同様に、コア耐久財受注の実績はほとんど縮小していない一方で、CEOの信頼感は景気後退水準にある（チャート 3、パネル2）。稼働率も2016年の底を大きく上回る水準で比較的強いままである（チャート 3、下段）。 チャート 2 ハード vs ソフトデータ：消費者側 Hard Vs. Soft Data: On The Consumer Side Hard Vs. Soft Data: On The Consumer Side チャート 3 ハード vs ソフトデータ：企業側 Hard Vs. Soft Data: On The Business Side Hard Vs. Soft Data: On The Business Side 住宅は、現在ハードとソフトのデータの間に二分法を示していない唯一のセクターである。全ての住宅活動指標は強く伸びており、昨年の弱さからの急速な回復を示している（チャート 4）。 チャート 4 住宅活動の概要 Housing Activity Summary Housing Activity Summary 貿易交渉が重要な鍵を握る ソフトデータがハードデータに遅れ始めたのは、昨年にグローバル経済政策不確実性指数が急上昇したのとほぼ同時期であった（チャート 5）。これにより、貿易戦争の負の影響への懸念がセンチメントと信頼感の指標を急落させたと結論づけられる一方で、貿易戦争のハードデータに対する実際の影響は小幅にとどまっている。 これが11月の米中貿易協議の結果が極めて重要である理由だ。新たな関税が導入されないことが明確になる合意が得られれば、ソフトデータは十分に改善してハードデータと収斂すると予想される。しかし、交渉が決裂すれば、ネガティブな調査データが最終的にハードデータを押し下げることになるだろう。 住宅は、現在ハードとソフトのデータの間に二分法を示していない唯一のセクターである。 現時点での感触では、迫り来る2020年の米国選挙が両者にとって合意を成立させる十分なインセンティブを提供していると考えているが、結果はどちらに転んでもおかしくない。先週金曜に公表した当社のグローバル・インベストメント・ストラテジーサービスのレポートでは、貿易交渉の見通しをより詳しく論じている。1 債券投資家にとって、貿易不確実性の除去はISM製造業PMIやCRB Raw Industrials指数のような重要なソフトデータの反発につながると確信している。これらの指標の上昇は債券利回りを急上昇させるだろう。CRB Raw Industrials指数と金の比率は10年米国債利回りを引き続き緊密に追跡している（チャート 6）。 チャート 5 貿易戦争の懸念が##br##センチメントに影響 Trade War Worries Affecting Sentiment Trade War Worries Affecting Sentiment チャート 6 貿易不確実性が薄れると債券利回りは急騰する Bond Yields Will Shoot Higher Once Trade Uncertainty Dissipates Bond Yields Will Shoot Higher Once Trade Uncertainty Dissipates 結論: 貿易に関する不確実性が調査による経済センチメント指標を押し下げている一方で、実体経済のハードデータは比較的堅調である。今後2か月の間に貿易戦争が落ち着き始めると見込んでいるため、調査データは反発し、債券利回りは上昇するだろう。 来週のフェド ハードとソフトの二極化は、フェドが今年大部分で述べてきた経済見通しの説明とよく整合する。すなわち、ベースラインの見通しは好ましいが下振れリスクがあるという認識だ。その見通し自体は直ちに政策対応を示唆するものではないが、インフレ期待が低いことは今後数か月のフェドの取るべき行動をかなり明確にしている。 5年/5年フォワードTIPSのブレークイーブン・インフレ率は現在1.68%であり、フェドのインフレ目標と整合する2.3%〜2.5%のレンジを大きく下回っている（チャート 7）。さらに、ニューヨーク連銀の消費者期待調査における3年物のインフレ予想の中央値は史上最低を更新した（チャート 7、下段）。フェドはインフレ期待を高めるために適切な行動を取らなければならない。現状では、景気回復が続くように金融環境を緩和的に保つことを確実にする必要がある。最終的に継続的な景気回復は実際のインフレの上昇をもたらし（チャート 7、パネル2）、インフレ期待は実際のインフレに追随して上昇するだろう。 チャート 7 インフレ期待の低さ＝緩和的なフェド Low Inflation Expectations Equals Accommodative Fed Low Inflation Expectations Equals Accommodative Fed 金融環境を緩和的に保つために、フェドは少なくとも市場の現時点での利下げ期待に合わせる必要がある。10月の利下げはほぼ完全に織り込まれており、したがって来週フェドが利下げを行う可能性は非常に高い。その後、市場は12月に4度目の利下げが行われる確率を概ね50/50で織り込んでいる。しかし、これらの期待は11月の貿易協議の結果や今後の経済データ次第で変化するだろう。 最終的には、今から12月までの間に十分な好材料が出て4回目の利下げは不要になると予想している。しかし、より重要なメッセージは、インフレ期待が低い限りフェドは市場の期待を裏切るリスクを取らないということである。 バランスシート更新 フェドは改定されたバランスシート政策の公表を来週まで待たない決断をした。先日報告したマネー・マーケットの混乱を考えれば、時間的余裕がなかったのは明らかである。2 我々のレポートの主な結論は、フェドが金利をコントロールし続けたいのであれば銀行準備金を市場により多く供給する必要があるということだ。これがまさにフェドが今後行うであろう措置である。フェドは短期国債の買い入れを遅くとも2020年第2四半期まで継続すると発表し、当初は月600億ドルのペースで開始する。さらに満期を迎える国債やMBSの償還金は新発の国債へ再投資し続ける。 継続する景気回復は実際のインフレ上昇につながる。 月600億ドルのペースが維持され、非準備金負債の成長率など他の仮定を置くと、フェドの措置により準備金の供給は来年6月までに1.53兆ドルから1.63兆ドルに増加し、証券保有は3.59兆ドルから4.05兆ドルに増加すると予測する（チャート 8および表 1参照）。 チャート 8 フェドのバランスシートの推移 The Fed's Balance Sheet Over Time The Fed's Balance Sheet Over Time 表 1 フェドのバランスシート：予測 Crisis Of Confidence Crisis Of Confidence これまで主張してきたように、フェドのバランスシートと金利政策の連動が切断された今、フェドの新しいバランスシート戦略から投資上の示唆は見出せない。債券投資の黄金律に従えば、フィードファンド金利の期待との相対的変化が引き続き債券利回りを駆動する。3 フェドのバランスシート戦略は将来の金利方針について何も教えてくれないため、概ね無視してよいだろう。 結論: インフレ期待が低い状況では、フェドは金融環境を緩和的に維持し、景気回復が順調に進むことを確保しなければならない。これは、フェドが市場の期待に応じて来週利下げを行うことを意味する。その先については、成長が十分に改善するため、さらなる利下げは不要になると予想している。 ネガティブ・コンベクシティを買う好機 過去数週間にわたり、我々はハイイールド債とエージェンシーMBSの魅力を繰り返し指摘してきた。これらのセクターに共通するのはネガティブ・コンベクシティである。つまり、ほとんどのフィクスト・インカム商品とは異なり、これらのデュレーションは利回りと正の相関を持つ。 その結果、今年の利回りの大幅な低下はハイイールド債とエージェンシーMBSの双方でデュレーションの大幅な低下を招いた（チャート 9）。しかしこのデュレーション低下にもかかわらず、ジャンクスプレッドは比較的横ばいを維持し、MBSスプレッドは実際に拡大している。言い換えれば、ネガティブ・コンベクシティ証券に内在するリスクが顕著に低下したにもかかわらず、期待リターンは下がっていない。 チャート 9 ネガティブ・コンベクシティ商品は魅力的 Negatively Convex Products Are Attractive Negatively Convex Products Are Attractive 先週、我々は米国スプレッド商品向けの新たなリスク測定法を発表した。4 「100ベーシスポイントを失うリスク」は、あるセクターが期間一致の米国債に対して100ベーシスポイント以上のアンダーパフォーマンスを示すために必要な年次スプレッド変化の標準偏差の数と考えられる。値が高いほど、そのセクターが100bpを失うリスクは低いことを意味するし、その逆もまた同様である。 チャート 10は、新しいリスク指標をインベストメント・グレードおよびハイイールドのクレジットティア、ならびに従来の30年エージェンシーMBSの期待リターンに対してプロットしたものである。縦軸は各セクターの12か月の期待超過リターンで、我々はこれをOASから期待デフォルト損失の調整分を差し引いて算出している。横軸は「100ベーシスポイントを失うリスク」を示している。 最近の市場の動きを文脈化するために、スプレッドが最後にボトムをつけた約1年前から各セクターがチャート10内でどのように動いたかを示している。注目すべき点は、昨年10月にはBa格およびB格のジャンク債がBaa格の社債よりも同等のリスクで高い期待リターンを提供していたことだ。現在ではBa格とB格は同様のリターン優位性を提供しているが、リスクははるかに小さくなっている。Caa格ジャンクは現在、リスクとリターンの両面でBaaセクターを明確に上回っている。 チャート 10 リスク・リワードのトレードオフはネガティブ・コンベクシティ証券に有利 Crisis Of Confidence Crisis Of Confidence エージェンシーMBSに目を向けると、デュレーションの大幅な低下が昨年10月以降の大幅なリスク削減につながっていることが再び確認される。これが、我々が最近エージェンシーMBSをAaa、Aa、A 格の社債に替えてアップグレードすることを推奨した理由である。5 結論: 今年の大幅な利回り低下は、リスク調整後の観点でネガティブ・コンベクシティ資産の魅力を高めた。投資家はインベストメント・グレードよりもハイイールドを優先すべきである。また、Aaa、Aa、A 格の社債よりもエージェンシーMBSを優先すべきである。 Ryan Swift 米国債券ストラテジスト rswift@bcaresearch.com 脚注 1 当社のグローバル・インベストメント・ストラテジー週次レポート「Kumbaya」（2019年10月18日付）を gis.bcaresearch.com でご覧ください 2 当社のU.S. ボンド・ストラテジー週次レポート「What’s Up In U.S. Money Markets?」（2019年9月24日付）を usbs.bcaresearch.com でご覧ください 3 当社のU.S. ボンド・ストラテジー特別レポート「The Golden Rule Of Bond Investing」（2018年7月24日付）を usbs.bcaresearch.com でご覧ください 4 当社のU.S. ボンド・ストラテジー週次レポート「A Perspective On Risk And Reward」（2019年10月15日付）を usbs.bcaresearch.com でご覧ください 5 当社のU.S. ボンド・ストラテジー週次レポート「Two Themes And Two Trades」（2019年10月1日付）を usbs.bcaresearch.com でご覧ください フィクスト・インカム・セクターのパフォーマンス 推奨ポートフォリオ仕様

ハイライト 先週合意された暫定的な「フェーズ1」貿易協定は、米中貿易戦争におけるデタントに向けた重要な一歩を示しています。 ブレグジット交渉の今後にかかわらず、ハード・ブレグジットは回避される見込みです。ポンドをロングで保有し続けてください。 米国の企業業績の伸びは第3四半期に横ばいとなる可能性が高く、ボトムアップの予想にある前年比減少とは対照的です。 世界成長が年末までに再加速すれば、企業業績の伸びは回復するはずです。 世界成長の強まりは米ドルに下押し圧力をかけるでしょう。 12か月の期間では、債券に対してグローバル株式をオーバーウェイトのまま維持してください。 景気循環株はディフェンシブ株をアウトパフォームし始めるはずです。金融セクターはついに日の目を見るでしょう。 好ましい追い風 2週間前に公表した第4四半期ストラテジー・アウトルックでは、グローバル株式が「見せて」フェーズに入ったと主張しました。つまり、株価指数が上昇するには、貿易戦争のエスカレーションの緩和と世界成長の回復を示す具体的な証拠が必要だという意味です。1  先週金曜、貿易面でいくつかの好材料がありました。2500億ドル相当の中国からの輸入品に対し10月15日に25％から30％へ引き上げる予定だった関税の実施を見送ることと引き換えに、中国は年間で400～500億ドル分の米国農産物を購入し、米国の金融サービス企業への市場アクセスを改善し、為替管理の透明性を高めることに合意しました。 確かに、やるべきことはまだ多く残っています。協定文はまだ最終化されていません。両国は、11月16–17日のチリ・サンティアゴでのAPECサミットまでに合意をまとめることを目指しています。しかし、どのような執行・解決メカニズムが協定に盛り込まれるかなど多くの重要課題が未解決のままであることを考えると、さらに遅延したり、交渉が決裂したりする可能性もあります。 先週の暫定合意は、知的財産保護の扱いという厄介な問題を「フェーズ2」に先送りする形にもなっています。「フェーズ1」がまとまり次第、間もなく「フェーズ2」が始まる予定です。 独立かつ超党派の米国知的財産の窃盗に関する委員会によれば、米国の生産者は知的財産の窃盗により年間で約$225～$600 billionの損失を被っているとされています。2 中国はしばしば最悪の加害国の一つと見なされてきました。 知的財産問題の重要性を考えれば、約1600億ドル相当の中国からの輸入に対して15％の関税が12月15日に導入されないようにするには、実質的な進展が必要となるでしょう。 トランプは合意を望んでいる 多くの障害が残るものの、先週の展開は18か月に及ぶ貿易戦争のデタントの見込みを大きく高めました。自称「マスター交渉人」であるトランプ大統領は、交渉を「ラブフェスト」と表現し、この貿易協定は「我が偉大なる愛国的農家のために結ばれたこれまでで最大かつ最高の取引だ」と呼び、最終合意が達成されることに「ほとんど疑いはない」と述べて自らの信頼性を賭けています。NAFTAの後継であるUSMCAと同様に、トランプは交渉を自らの功績として宣伝するマーケティングモードに入る可能性が高く、米国民のために交渉した「驚くべき」新協定を大々的に宣伝するでしょう。 政治的観点から見ると、これは非常に理にかなっています。正否は別として、トランプ大統領は有権者から経済運営について他のどの分野よりも高い評価を受けています（チャート 1）。長引く貿易戦争は米国経済を弱体化させ、トランプの再選の見通しを損なうことになります。 チャート 1 トランプは経済運営について比較的高評価を得ているが、他はそれほどではない クンバヤ クンバヤ チャート 2 中国企業は関税の大部分を負担していない クンバヤ クンバヤ トランプの主張に反して、証拠は明確に米国の消費者が関税の大部分を負担していることを示唆しています。チャート 2は、対中輸入品に対する関税率が上昇する一方で、米国の輸入価格はほとんど下がっていないことを示しています。最近の関税の多くが米国や第三国に競合相手がほとんどいない中国製品に焦点を当てている以上、中国の生産者が関税コストを転嫁する能力はさらに高まります。 もし発表されたすべての関税引き上げが実施されれば、対中輸入品の実効関税率は8月下旬時点の約15％から12月には最大約25％にまで上昇することになります（チャート 3）。そのような関税率は、米国の可処分所得を1000億ドル以上減少させ、2017年の減税によるほとんどの恩恵を消し去ることになります。トランプは貿易戦争をそこまで進行させるわけにはいきません。 チャート 3 度重なる関税引き上げが積み重なり始めている 相次ぐ関税が積み重なり始めている 相次ぐ関税が積み重なり始めている 中国は強硬策に出るか？ 貿易戦争を有利に解決する上でのリスクの一つは、中国側がトランプを「合意に飢えている」と見なし、交渉で強硬姿勢をとる可能性があることです。このリスクは無視できませんが、我々は次の三つの理由でそれを過度に重視しません。 第一に、貿易戦争の期間、中国の輸出業者はある程度の価格決定力を維持してきたとしても、貿易量は依然として悪化しており、9月の対米輸出は前年同月比でほぼ22％減少しています。 第二に、ZTEに対する強力な制裁が示したように、中国は依然として米国の技術に大きく依存しています。これがトランプに交渉上の大きなレバレッジを与えています。 チャート 4 誰が2020年の民主党指名を勝ち取るか？ クンバヤ クンバヤ 第三に、トランプ自身がよく言うように、中国は彼の第1期目の任期中に彼と交渉する方が、第2期目になってから交渉するよりも容易だと考えるでしょう。数か月前、ジョー・バイデンが世論調査で高支持率だったときにはトランプの再選を望まない方が中国にとって理にかなっていたかもしれませんが、エリザベス・ウォーレンが民主党指名を獲得する有力候補として浮上したことで、その希望は消えました（チャート 4）。数週間前に述べたように、中国はウォーレンが貿易問題でトランプよりも手ごわくないとは考えないでしょう。3  これらすべてを総合すると、中国もトランプ同様、今後数週間で貿易緊張を和らげる方法を模索するだろうと示唆しています。 ブレグジットの突破口か？ 記事執筆時点で、ブレグジット合意の見通しは明るくなっています。詳細はまだ公表されていませんが、提案された合意は北アイルランドを事実上、欧州単一市場の一部でありながら同時に英国の一部でもあるという量子的な重ね合わせ状態に置くことになります。これは北アイルランドを英国の政治的管轄下に置きつつ、EUの規制基準と整合させ続けることで実現されます。 交渉が破綻する可能性は依然としてあります。ジョンソン首相が「素晴らしい新協定を取り付けた」と確約したにもかかわらず、保守党の連立相手である北アイルランドの民主統一党は依然として協定への支持を留保しています。労働党のジェレミー・コービン党首もこれを拒否し、テリーザ・メイが当初提案した協定よりもさらに悪いと述べています。 今後数日に何が起きようとも、我々はハード・ブレグジットは回避されると引き続き考えています。ブレグジット問題を通じて、英国の支配階級の中に無協議離脱を支持する十分な政治的支持は存在しないと我々は主張してきました。世論調査が示すように、再度国民投票が行われればEU残留を選ぶ有権者の割合が増えていることが明らかになるにつれ、その確信はさらに強まっています（チャート 5）。 我々は2017年8月3日以来、ユーロに対してポンドをロングしています。このトレードはこの期間で6.6％上昇しました。投資家はこのポジションを維持すべきです。実質金利差に基づけば、GBP/EURは現在の1.16ではなく1.30付近で取引されるべきであると考えられます（チャート 6）。ハード・ブレグジットリスクがさらに後退すれば、クロスは公正価値に向かうと予想します。 チャート 5 ブレグジット不安：後悔の事例 ブレグジット不安：ブレモースの場合 ブレグジット不安：ブレモースの場合 チャート 6 ポンドには大きな上値余地がある ポンドの大幅な上昇余地 ポンドの大幅な上昇余地   世界成長見通しは改善 チャート 7 成長減速はソフトデータでより顕著だった 景気の減速はソフト指標でより顕著になっている 景気の減速はソフト指標でより顕著になっている チャート 8 ISMの低迷の中で製造業生産は反発している 製造業の生産高がISM指数の低迷の中で反発 製造業の生産高がISM指数の低迷の中で反発 貿易戦争のデタントとブレグジット問題の解決は世界成長を下支えするはずです。経済データの弱さは、事業調査のような「ソフト」指標でより明確に現れており、工業生産などの「ハード」指標ほど顕著ではありません（チャート 7）。特に、ISM製造業指数が低迷する中でも、過去3か月間で米国の製造業生産は安定しています（チャート 8）。センチメントが回復すれば、ソフトデータも改善するでしょう。 世界の金融環境は、主に多くの中央銀行によるハト派転換のおかげで過去5か月で大幅に緩和されました（チャート 9）。政策金利を引き下げた中央銀行の純数は、一般に6～9か月先行して世界の製造業PMIをリードします（チャート 10）。加えて、FRBが再び国債買入れを開始した決定はドル流動性を増やし、金融環境の更なる緩和に寄与するでしょう。 チャート 9 緩和された金融環境が世界成長を押し上げる 金融環境の緩和が世界経済の成長を後押しする 金融環境の緩和が世界経済の成長を後押しする   チャート 10 金融緩和の効果は間もなく実体経済に波及するはずだ 金融緩和の効果は間もなく経済に波及するはずだ。 金融緩和の効果は間もなく経済に波及するはずだ。 中国による景気刺激の強化も世界成長の再加速を後押しするはずです。中国のマネーおよびクレジットの伸びは9月に予想を上回りました。中国人民銀行は預金準備率を引き下げており、これがインターバンク金利の低下に寄与しています。残りの今年期間で中期貸出制度（MLF）への更なる利下げが予想されます。中国のクレジット成長の変化は世界成長を約9か月先行します（チャート 11）。 チャート 11 中国の信用拡大が世界成長の回復を支える 中国のクレジットは世界経済の成長回復を支えるはずだ 中国のクレジットは世界経済の成長回復を支えるはずだ グローバル株式をオーバーウェイトのまま APECサミットまでに「フェーズ1」貿易協定をまとめる道のりはでこぼこ道である可能性が高いものの、我々は12か月の投資期間において債券に対してグローバル株式をオーバーウェイトするという推奨を引き続き強調します。 世界成長が底打ちしているという証拠をもう少し確認でき次第、数週間以内に新興国（EM）および欧州株式の評価を引き上げる見込みです。 最終的に株式の軌道は業績の動向に依存します。米国の決算シーズンは今週始まりました。先週時点でFactSetがまとめたデータによれば、アナリストはS&P500のEPSが第3四半期に前年同期比で4.6％減少すると予想していました。ただし、2015年以降、EPS成長は概ね予想を約4ポイント上回ってきたことを念頭に置いてください（チャート 12）。したがって、妥当な見方は、米国の業績は今四半期横ばいとなり、低い期待値のハードルをクリアするというものです。 チャート 12 実際のEPSは概ね予想を上回っている クンバヤ クンバヤ チャート 13 利益と名目GDP成長は同じ動きをする傾向がある 収益と名目GDP成長率は歩調を合わせて動く傾向がある 収益と名目GDP成長率は歩調を合わせて動く傾向がある これまでに決算を発表した63社のS&P500構成銘柄のうち83％が予想を上回っており、これは歴史的平均の64％を上回っています。これにより現在の第3四半期の見積りは悲観的すぎるという見方が支持されます。 先を見れば、名目GDP成長が加速するにつれて業績成長は回復するはずです（チャート 13）。 世界成長が加速すると、新興国（EM）と欧州株式は一般にグローバルベンチマークをアウトパフォームする傾向があります（チャート 14）。これはそれらの株式市場がより景気循環的であるためです。加えて、ドルは逆循環的通貨として、高成長環境では弱含む傾向があります。ドル安は景気循環株に対して相対的に大きな恩恵をもたらします（チャート 15）。  チャート 14 新興国およびユーロ圏の株式は世界成長が改善すると通常アウトパフォームする 世界経済の成長が改善すると、新興国株式とユーロ圏株式は通常アウトパフォームする 世界経済の成長が改善すると、新興国株式とユーロ圏株式は通常アウトパフォームする チャート 15 ドルが弱含めば景気循環株がアウトパフォームする ドル安になれば景気循環株がアウトパフォームする ドル安になれば景気循環株がアウトパフォームする 我々は金融株を景気循環セクターの定義に含めます。世界成長が改善すると、長期国債利回りは限界的に上昇します。中央銀行が急いで利上げする状況にはないため、イールドカーブはスティープ化するでしょう。これが銀行の利益と株価を押し上げます（チャート 16）。 景気循環株は現在ディフェンシブ株と比べてかなり割安です（チャート 17）。同様に、非米国株式は地域間のセクター構成の違いを調整しても、米国株に比べてかなり割安です。米国株はフォワードEPS倍率で17.5倍で取引されているのに対し、国際株式はより魅力的な13.7倍のフォワードPEで取引されています。より高い利益利回りとより低い海外金利の組み合わせは、米国外の株式リスクプレミアムが概ね2パーセントポイント高いことを示唆しています（チャート 18）。 チャート 16 利回り曲線の急勾配化は金融株に恩恵をもたらす より急勾配なイールドカーブは金融セクターに恩恵をもたらす より急勾配なイールドカーブは金融セクターに恩恵をもたらす チャート 17 景気循環株はディフェンシブ株より魅力的だ 景気循環株はディフェンシブ株より魅力的だ 景気循環株はディフェンシブ株より魅力的だ   チャート 18 株式リスクプレミアムはかなり高く、特に米国外で顕著だ 株式リスクプレミアムはかなり高く、特に米国外で顕著です。 株式リスクプレミアムはかなり高く、特に米国外で顕著です。 世界成長が底打ちするという証拠をもう少し確認でき次第、我々は数週間以内に新興国および欧州株式の評価を引き上げる見込みです。  ピーター・ベレジン、 チーフ・グローバル・ストラテジスト グローバル・インベストメント・ストラテジー peterb@bcaresearch.com 脚注 1本文は、グローバル・インベストメント・ストラテジーの「第4四半期2019 ストラテジー・アウトルック：『見せて』市場」（2019年10月4日）を参照してください。 2 「Update to IP Commission Report: The Report of the Commission on the Theft of American Intellectual Property」（2017年）、The National Bureau of Asian Research。 3本文は、グローバル・インベストメント・ストラテジー週次レポートの「エリザベス・ウォーレンと市場」（2019年9月13日）を参照してください。 ストラテジー＆マーケット動向 マクロクォント・モデルと現在の主観的スコア クンバヤ クンバヤ 戦略的推奨 クローズドトレード

特別レポート

Today we are also publishing a Special Report titled Chinese Auto Demand: Time For A Recovery? Highlights India is the third-largest world consumer of crude oil. Hence, fluctuations in its oil consumption is a non-negligible factor behind global oil prices. India’s petroleum demand growth is slowing cyclically due to the domestic demand slump and a dramatic drop in vehicle sales. This, combined with China’s ongoing slowdown in petroleum product demand, will have a non-trivial impact on oil prices in the next six months. From a structural perspective, India’s long-term demand growth for petroleum is decelerating as well. Feature India’s petroleum products consumption growth is slowing. Chart 1India Is The World's Third Largest Crude Oil Consumer India is the world’s third-largest consumer of crude oil, guzzling 5% of global consumption (Chart 1). Hence, fluctuations in India’s crude oil/petroleum consumption is a non-negligible factor affecting global oil prices. India’s petroleum products consumption growth is slowing. This comes on top of China’s ongoing petroleum demand deceleration. Together, the two countries account for 19% of the world’s oil intake. Therefore, deceleration in their oil consumption growth will have a considerable impact on the outlook for global oil demand growth. A Pronounced Cyclical Oil Demand Slump Indian petroleum consumption growth has decelerated significantly on the back of slumps in Indian domestic spending and economic activity (Chart 2). Please click on this link for an in-depth analysis on the domestic demand slump in India. Chart 2Indian Petroleum Consumption Growth Has Been Dwindling Specifically, vehicle purchases and industrial sectors have been hit hard. These sectors are critical for Indian petroleum consumption, since transportation demand accounts for 50% and industrial activity for around 25% of total petroleum consumption (Chart 3). Indian vehicle sales have been in freefall. Chart 3Transportation & Industry Guzzle The Most Fuel In India Chart 4Indian Vehicle Sales Are In Deep Contraction Indian vehicle sales have been in freefall. Chart 4 shows passenger car sales are shrinking at 30% and sales of two and three-wheeler units are contracting at 20% from a year ago. Moreover, commercial vehicles and tractor unit sales are falling at annual rates of 35% and 10%, respectively. Chart 5 illustrates that the number of registered vehicles is expanding at a lower rate than before – i.e., its second derivative has turned negative. This signals a further growth slowdown in gasoline and diesel consumption. We use the second derivative in this analysis because registered vehicles are a stock variable. However, we are trying to explain changes in petroleum consumption which is a flow variable. Therefore, the second derivative of a stock variable (the number of registered cars on the road) explains the first derivative of a flow variable (the growth rate of oil consumption). Looking ahead, vehicle sales will remain in the doldrums because of a lack of financing. In particular, the impulse on auto loans issued by commercial banks is negative (Chart 6). Chart 5Slowing Growth Of Vehicles On The Road = Weaker Pace Of Fuel Consumption Chart 6Indian Banks: Negative Vehicle Loan Impulse More worrisome is the ongoing turmoil in India’s non-bank finance sector (NBFCs), which has also significantly hit auto sales. In the past, the NBFC sector played a major role in funding Indian auto purchases. For instance, according to the ICRA, an independent rating agency in India, NBFCs have helped fund the purchases of 65% of two-wheelers, 30% of passenger cars and around 55% of commercial vehicles – both new and used. Given these non-bank finance companies are currently facing formidable funding and liquidity pressures amid rising NPLs (Chart 7), they are being forced to shrink their balance sheets. This is damaging to auto sales. Please click here for an in-depth analysis on the Indian banking and non-bank finance sectors. Chart 7Major Asset-Liability Mismatches Among Indian Non-Bank Finance Sector Chart 8India's Capex Has Been Weak Turning to the industrial sector, overall Indian capital spending has been weak. India’s real gross fixed capital formation has rolled over, the number of capex projects underway is nosediving and both capital goods imports and production are contracting by 7% and 12% on an annual basis (Chart 8). Falling industrial activity has taken a toll on the consumption growth of petroleum products with industrial applications, such as bitumen, naphtha and petroleum coke, etc. The growth rate in demand for these products is dropping — a significant development since they account for 25% of overall petroleum consumption in India.1  Bottom Line: India’s petroleum consumption growth has been slowing drastically from a cyclical perspective. And Moderating Structural Oil Demand Growth It appears there are structural factors at play that will also reduce India’s long-term demand for petroleum. On top of the cyclical demand slowdown, it appears there are structural factors at play that will also reduce India’s long-term demand for petroleum: Chart 9Impressive Efficiency Gains In India's Vehicle Fleet The fuel efficiency of India’s vehicle fleet is markedly improving (Chart 9). Additionally, since 2015-16 the Indian government has been proactively pursuing new emission/fuel efficiency standards. For instance, emissions standards for new passenger vehicles will fall to 4.2 L/100 KM by 2023 down from its current level of 4.6 L/100 KM. This will lead to a 7% reduction in auto fuel consumption. While this is not a large reduction, the government has the scope to implement even stricter standards since Indian car makers are easily meeting these targets. Finally, the Indian government has been aggressively promoting electric vehicles (EVs) as an alternative to traditional autos. It has made the advancement of this sector a priority. Ownership of EVs is currently negligible in India. However, the government is pushing for EVs to make up 30% of vehicle sales by 2030. In addition, it has been providing incentives such as sales tax cuts and subsidies to the sector. Finally, Mahindra and Tata Motors are already establishing a lead in the EV industry and are developing new EV models in collaboration with foreign automakers.  Bottom Line: The pace of India’s structural demand for petroleum will also be downshifting. Oil Inventory Not A Critical Factor Chart 10China: Oil Inventory Drives Oil Imports Inventory accumulation and destocking can play an important role in oil price fluctuations. For example, inventory accumulation plays a key role in driving Chinese crude oil imports (Chart 10). There is a dearth of data on Indian oil inventories to make a strong inference about its de- and re-stocking cycles. However, we have the following observations: India has the capacity to store 5.33 million tons worth of strategic oil reserves - equivalent to around 10 days of its crude oil consumption. It is not clear whether or not these reserves are at full capacity. However, even if we assume they are only 50% full and the government decides to fill its reserves all at once, this would require the importation of an additional 2.67 million tons of oil, equivalent to only 1.2% of Indian crude oil imports and 0.05% of global crude oil demand. This is a negligible amount, and is unlikely to have any impact on global oil prices. Furthermore, while the Indian government is planning to expand its storage capacity by an extra 6.5 million tons, this will only take place in the next six to eight years. Thus, it will not meaningfully affect oil imports in the medium term. Chart 11India: Oil Consumption Drives Oil Imports Finally, India’s crude oil imports are strongly correlated with its petroleum final consumption (Chart 11). Therefore, it is reasonable to assume that Indian consumption – not the oil inventory cycle – is relevant for crude imports, and by extension for oil prices. Bottom Line: India’s petroleum product and crude oil inventory fluctuations are too small to influence the nation’s crude imports and hence global oil prices. Investment Conclusions From a cyclical perspective, Indian final demand for crude oil has been weakening. A major re-acceleration in economic growth and hence oil demand is not imminent. We discuss the outlook for China’s auto sales in a separate report published today. Together India and China consume 19% of world oil, and therefore a deceleration in their oil consumption growth will have a non-trivial impact on the pace of global oil demand growth. Chart 12Expansion Pace Of Vehicles On The Road Has Downshifted In India & China Our estimations for annual growth in cars on the road (excluding 2-wheelers) has dropped to 5.8% in India and 10.5% in China (Chart 12). This entails a slower pace of oil demand growth than in the past. Besides, if one rightly assumes petroleum consumption per car is declining for structural reasons due to technological advancements by car manufacturers and enforcement of stricter efficiency standards by governments, oil consumption growth will be considerably slower going forward relative to the past 20 years. Together India and China consume 19% of world oil, and therefore a deceleration in their oil consumption growth will have a non-trivial impact on the pace of global oil demand growth. This presents a major risk for crude prices in the next 6 months or so. Beyond the cyclical horizon, the long-term demand outlook for oil is also downbeat. Please note that this is the view of BCA’s Emerging Markets Strategy team, and differs from that of BCA’s house view, which is bullish on oil. Chart 13India’s Relative Equities Performance Benefits From Lower Oil Prices In turn, low oil prices are positive for the relative performance of Indian stocks versus the EM equity benchmark (Chart 13). This was among the primary reasons why we upgraded the allocation to this bourse within an EM equity portfolio to neutral from underweight on September 26, 2019. In absolute terms, the outlook for Indian share prices remains downbeat, as discussed in the same report. Finally, to express our negative view on oil prices, we are reiterating our short oil and copper / long gold position recommended on July 11, 2019. Industrial commodities such as copper and oil will continue to underperform gold prices in the medium term (the next six months). Ayman Kawtharani, Editor/Strategist ayman@bcaresearch.com   Footnotes 1      Diesel consumption will also be impacted. While the latter is mostly consumed by the transportation sector in India, diesel does have some industrial applications as well. Equities Recommendations Currencies, Credit And Fixed-Income Recommendations

ハイライト 市場予測 2019年第4四半期のストラテジー見通し：「見せて」相場 2019年第4四半期のストラテジー見通し：「見せて」相場 投資ストラテジー: 市場は「実績を見せて（show me）」の段階に入っています。株式が持続的に上昇するためには、より良好な経済指標と貿易交渉における実質的な進展が必要です。当社は両方の前提が実現すると考えています。それまでは、リスク資産が下押し圧力にさらされる可能性があります。 グローバル・アセット・アロケーション: 投資家は12か月の見通しでは株式を債券に対してオーバーウェイトすべきですが、短期的には下方リスクに対するヘッジとして通常より高めの現金ポジションを維持してください。 株式: グロースがボトムアウトした後は、新興市場（EM）および欧州株がアウトパフォームするでしょう。金融を含む景気循環性セクターは、成長サイクルが反転したときにディフェンシブをアウトパフォームし始めます。 債券: 中央銀行はハト派姿勢を維持するでしょうが、世界的な成長の強まりを背景にイールドはそれでも緩やかに上昇する見込みです。国債よりもハイイールドのコーポレート・クレジットを優先してください。 通貨: 逆景気循環的通貨である米ドルは今年後半にピークを迎えると見ています。 コモディティ: 原油および産業用金属の価格は上昇するでしょう。金価格は足踏み状態に入っていますが、インフレがついに顕在化する来年末または2021年に再び注目を集めるはずです。 特集 クライアントの皆様へ、 本レポートに代えて、私は10月7日月曜日の東部夏時間（EDT）午前10時にウェブキャストを開催し、年末以降に想定される主要な投資テーマと見解について説明しました。 敬具, ピーター・ベレジン、チーフ・グローバル・ストラテジスト   I. グローバル・マクロの見通し 世界経済の試練期 世界経済は重要な岐路に差し掛かっています。成長は2018年初めから減速しており、多くの者が「失速速度（stall speed）」とみなす水準に達しています。これは経済の弱さが自己強化的に作用し始め、景気後退を引き起こす可能性があるポイントです。 成長の減速はさらに悪化するのでしょうか。私たちの見立てではそうはならないと考えます。ここ4か月で世界の金融環境は大幅に緩和しており、その一因は多くの中央銀行によるハト派への転換です。金融環境の緩和は通常、世界成長にとって好材料です（図表1）。当社のグローバル先行指標は上向きになっており、主に新興市場のデータのわずかな改善によるものです（図表2）。 図表1金融環境の緩和は世界成長を押し上げる 金融環境の緩和は世界経済の成長を押し上げるだろう。 金融環境の緩和は世界経済の成長を押し上げるだろう。 図表2グローバル先行指標は底を抜けた グローバルLEIは安値から反発した グローバルLEIは安値から反発した     重要な問いは、製造業の弱さがより大きなサービス業セクターへ波及するかどうかです。これは起きつつあるという証拠があり、昨日の予想を下回るISM非製造業指数の発表が最新の例です。それでも、サービス業の活動の減速はこれまでのところ限定的です（図表3）。製造業比率の高いドイツでさえ、サービス業PMIは拡張域にあります。これは、製造業とサービス業の活動が足並みをそろえて崩落した2001/02年や2008/09年と大きく異なる点です。 図表3Aサービス業は製造業ほど軟化していない（I） サービス部門の軟化は製造業ほど顕著ではない（I） サービス部門の軟化は製造業ほど顕著ではない（I） 図表3Bサービス業は製造業ほど軟化していない（II） サービス業は製造業ほど弱まっていない（II） サービス業は製造業ほど弱まっていない（II） ドライブバイ的な減速 多くの投資家に製造業の減速の理由を尋ねれば、貿易戦争や中国のデレバレッジ政策を挙げるでしょう。これらは確かに妥当な理由ですが、あまり知られていないもう一つの犯人があります：自動車です。 WardsAutoによれば、世界の自動車販売は年央の上半期に5％超減少し、グレート・リセッション以来最大の落ち込みとなりました（図表4）。生産はさらに大きく落ち込みました。 図表4自動車セクターの弱さが製造業の下落を悪化させた 自動車セクターの弱さが製造業の低迷を一層悪化させた 自動車セクターの弱さが製造業の低迷を一層悪化させた 図表5米国の自動車需要は回復しつつある 米国の自動車需要は回復している 米国の自動車需要は回復している   世界の自動車セクターの弱さは複数の要因を反映しています。新たな厳格な排出基準、税制優遇の期限切れ、厳格化された自動車ローンの貸出基準の遅行効果、貿易緊張などが一因です。加えて、2015/16年のガソリン価格の下落は一部の自動車購入を前倒しさせた可能性があります。これにより、2015/16年の世界的な製造業の落ち込みが現在の落ち込みの種を蒔いた可能性があります。 自動車の生産が販売よりも速く落ちているという事実は、過剰在庫が解消されつつあることを意味するため、歓迎すべき点です。 米国の自動車ローン貸出基準は正常化し始めており、最新のシニアローンオフィサー調査では銀行が自動車ローンの需要増を報告しています（図表5）。 中国では、自動車販売は今年初めに最大14％の落ち込みを示した後に底を打ちました（図表6）。中国の自動車保有率は米国の5分の1、日本の4分の1、韓国の3分の1程度に過ぎません（図表7）。出発点が低いため、中国の自動車販売は中長期的な上昇トレンドを再開する可能性が高いです。 図表6中国の自動車セクターは底を探している 中国の自動車セクターが底を打ち始めている 中国の自動車セクターが底を打ち始めている 図表7中国：自動車の構造的見通しは明るい 中国：自動車の構造的見通しは明るい 中国：自動車の構造的見通しは明るい   貿易戦争：デタントに向かっているのか？ 図表8比較的規則的な3年周期の製造業サイクル かなり規則的な3年周期の製造業サイクル かなり規則的な3年周期の製造業サイクル 製造業サイクルは一般に約3年続きます──成長の減速が18か月、その後成長の上昇が18か月です（図表8）。世界の製造業PMIが2018年上半期にピークをつけたとするなら、現在の下落局面は終盤に差し掛かっているはずです。 もちろん、多くは政策の進展次第です。執筆時点で米中のハイレベルの交渉は再開しています。 これらの協議の結果を予測することは不可能ですが、双方とも対立激化を回避するインセンティブを持っているように見えます。トランプ大統領は経済運営に関しては有権者から他の事柄よりもかなり高い評価を受けており、対中貿易交渉の扱いも含めてそれは当てはまります（図表9）。長期化する貿易戦争は米国の成長と株式市場に悪影響を与え、いずれもトランプ氏の再選可能性を損なうことになります。 図表9トランプは経済運営ではまずまず高評価だが、それ以外は評価が低い 2019年第4四半期のストラテジー見通し：『ショー・ミー』マーケット 2019年第4四半期のストラテジー見通し：『ショー・ミー』マーケット 図表10誰が2020年の民主党指名を勝ち取るか？ 2019年第4四半期のストラテジー見通し：「ショー・ミー」マーケット 2019年第4四半期のストラテジー見通し：「ショー・ミー」マーケット 中国も成長を下支えしたいと考えています。中国指導部にとってトランプと対処するのは困難だったにせよ、彼が再選された後に貿易合意を取り付けるのはさらに難しくなるでしょう。特にトランプが中国が自身の再選を妨害しようとしたと考えればなおさらです。 たとえトランプが選挙に敗れたとしても、中国が貿易問題で交渉しやすい相手を得られるかは不透明です。賭け市場が現在ジョー・バイデンよりも民主党候補指名獲得の可能性が高いと見ているエリザベス・ウォーレン大統領と環境基準や人権について交渉したいでしょうか（図表10）？ 民主党によるトランプ大統領の弾劾の動きは、貿易解決をやや実現しやすくするでしょう。第一に、それはジョー・バイデン（および彼の息子）のウクライナでの疑わしい取引に注目を集め、中国が支持する米大統領候補に打撃を与えます。第二に、トランプを国内問題に集中させるために中国との争いを早く片付けたいという意向を強めさせる可能性があります。 中国はさらに刺激策を行うか？ 戦略的に見て、中国には経済を刺激して成長を支え、貿易交渉でより大きなレバレッジを得る強いインセンティブがあります。 中国のクレジット・インパルスは2018年後半に底打ちしました。このインパルスは中国の名目製造業生産やその他多くの活動指標に約9か月先行します（図表11）。 これまでのところ、中国の信用・財政緩和の規模は、2015/16年および2008/09年に経済へ投入された刺激策には及んでいません。これは部分的には当局が当時よりも今日の過度な債務水準をより懸念しているためですが、同時に経済の状況が当時より良好であることも理由です。 貿易戦争からのショックはグレート・リセッションほど深刻ではありません──中国の対米輸出は付加価値ベースでGDPのわずか2.7％に過ぎないことを思い出してください。2015/16年に中国が1兆ドル超の外貨準備を失ったのとは異なり、今回の資本流出は限定的にとどまっています（図表12）。 図表11中国の刺激策は世界成長を押し上げるはずだ 中国の景気刺激策は世界経済の成長を押し上げるはずだ 中国の景気刺激策は世界経済の成長を押し上げるはずだ 図表12中国：大きな資本流出はない 中国：大規模な資本流出は見られない 中国：大規模な資本流出は見られない 今週初めに発表された予想を上回る中国の購買担当者指数（PMI）データは一縷の望みを提供しています。それでも、8月の活動指標の失望的な数字を踏まえると、中国は今後数か月で刺激のペースを高める可能性が高いです。 当局はすでに預金準備率を引き下げています。今後数か月で政策金利をさらに引き下げると予想します。また、地方政府債の発行を前倒しすることでインフラ支出を押し上げるでしょう。ヨーロッパの成長は改善するはずだ 世界的な成長の回復は今年後半にヨーロッパを後押しするだろう。貿易依存度の高いドイツが最も恩恵を受けるだろう。 チャート13南欧全域でスプレッドは縮小した 南ヨーロッパ全域でスプレッドが縮小した 南ヨーロッパ全域でスプレッドが縮小した チャート14マネー成長の加速はユーロ圏の国内総生産成長に好材料となる マネー供給の加速はユーロ圏のGDP成長にとって好材料 マネー供給の加速はユーロ圏のGDP成長にとって好材料 ソブリン・スプレッドの低下も南欧を支えるはずだ（チャート13）。イタリアの対独国債の10年スプレッドは8月中旬以来ほぼ1ポイント縮小し、イタリアの10年利回りは0.83％まで低下した。ギリシャの10年債は現在米国債より利回りが低くなっている（ギリシャの製造業購買担当者景気指数は現在世界で最も強い）。 欧州中央銀行が再び市場で国債と社債を買い入れているため、借入金利は低い水準にとどまるはずだ。国内総生産の先行指標であるユーロ圏のマネー成長はすでに加速している（チャート14）。民間向け銀行貸出は引き続き加速するだろう。 適度な財政刺激も助けになるだろう。欧州委員会はユーロ圏の財政的な押し上げが2019年に国内総生産比0.5％増加すると見積もっている（チャート15）。保守的に公共支出乗数を1と仮定すると、これはユーロ圏の成長を0.5ポイント押し上げることになる。財政政策の変更と実体経済への影響の間にはタイムラグがあるため、国内総生産成長への恩恵の大部分は今年の残りと2020年に発生するだろう。 チャート15ユーロ圏の財政刺激策も成長を押し上げるだろう ユーロ圏の財政刺激策も成長を押し上げる ユーロ圏の財政刺激策も成長を押し上げる チャート17ブレグジットの不安：後悔の一例 ブレグジットの不安：ブレモースの事例 ブレグジットの不安：ブレモースの事例 チャート16英国：ブレグジットの不確実性が成長を圧迫している 英国：ブレグジットの不確実性が成長を押し下げている 英国：ブレグジットの不確実性が成長を押し下げている 英国では、ブレグジットの不確実性が引き続き成長を圧迫している。英国の企業投資は特に大きな打撃を受けている（チャート16）。ボリス・ジョンソン首相は10月末に合意の有無にかかわらず英国を欧州連合から離脱させると主張し続けている。我々は彼の虚勢をあまり重視しないつもりだ。最高裁判所はすでに議会を閉鎖しようとする彼の試みを否定している。国民はブレグジットの望ましさについて再考している（チャート17）。ブレグジットの筋書きの正確な展開について我々は確固たる見解を持っているわけではないが、合意なきブレグジットの確率は低いと考えている。これは英国の成長とポンドにとって好材料だ。 日本：オウンゴール 最近の日本のデータは芳しくない。8月の工作機械受注は前年同月比で37％減少した。輸出は8％超縮小し、輸入は12％の減少を記録した。9月の購買担当者景気指数の数値は製造業のさらに悪化を露呈させ、指数は8月の49.3から48.9に低下した。 加えて、鉱工業生産は8月に予想より大きく縮小し、前月比で1％減少、前年同月比では約5％の下落となった。米中貿易交渉をめぐる継続する不確実性や、日本自身と隣国韓国との緊張も日本経済に重荷となっている。 世界的な成長が回復すれば日本の産業活動は今年後半に改善するだろう。しかし、政府は10月1日の消費税引き上げによって成長見通しを助けてはいない。各種の相殺策が税率引き上げの完全な効果を鈍らせるとはいえ、それでも不要な財政引き締めに相当する。 名目国内総生産は1990年代初頭以来ほとんど増加していない。日本に必要なのは名目所得を押し上げる政策だ。そのようなリフレーション政策こそが、経済をデフレのスパイラルに戻すことなく債務対国内総生産比を安定させる唯一の方法かもしれない。1  米国：粘り強く対応 チャート18米国の製造業の割合は他のほとんどの先進国より小さい 2019年第4四半期のストラテジー見通し：「見せて」マーケット 2019年第4四半期のストラテジー見通し：「見せて」マーケット 米国経済は最近の世界的な景気減速の中でも比較的良好に推移してきたが、部分的には製造業が多くの他国よりも国内総生産に占める割合が小さいためだ（チャート18）。 アトランタ連銀のGDPNowモデルによれば、実質国内総生産は第3四半期にトレンドに近い1.8％のペースで増加する見込みだ（チャート19）。個人消費は第2四半期の4.6％の成長の後、2.5％増加する見込みだ。消費は賃金上昇に支えられて堅調であり、個人貯蓄率も高水準にとどまっているため、家計は何らかの不利なショックからの緩衝に備えられるはずだ（チャート20）。   チャート19米国の成長は鈍化したが、依然としてトレンドに近い 2019年第4四半期のストラテジー見通し：『実績を示せ』市場 2019年第4四半期のストラテジー見通し：『実績を示せ』市場 住宅投資はついに回復局面に入ったように見える。着工件数、建築許可、住宅販売はいずれも回復している。住宅ローン金利と住宅建設の密接な関係を考えれば、建設活動は今後数四半期で加速するはずだ（チャート21）。低い在庫と空室率、世帯形成の増加、そして手頃な価格はいずれも住宅市場にとって好材料だ（チャート22）。 チャート20資産との歴史的関係から判断すると貯蓄率は（大幅に）低下する余地がある 貯蓄率は、資産との歴史的関係から判断すると（かなり）低下する余地がある 貯蓄率は、資産との歴史的関係から判断すると（かなり）低下する余地がある チャート21米国の住宅は回復するだろう 米国の住宅市場は回復する 米国の住宅市場は回復する チャート22米国住宅：堅実な基盤の上にある 米国住宅：堅固な基盤の上にある 米国住宅：堅固な基盤の上にある チャート23米国の設備投資計画は高値から後退したが、景気後退水準にははるかに届いていない 米国の設備投資計画は高値圏から後退したが、景気後退水準にはほど遠い 米国の設備投資計画は高値圏から後退したが、景気後退水準にはほど遠い 住宅投資とは対照的に、企業の設備投資は製造業の不況、強いドル、貿易政策の不確実性に押され続けている。コア耐久財受注は8月に減少した。設備投資意向調査も弱含んでいるが、景気後退水準をはるかに上回っている（チャート23）。 ISM製造業指数は9月に2009年7月以来の低水準に達した。報告の内訳はヘッドラインほど悪くはなかった。ISMを2か月先行する受注対在庫の構成要素は再びプラス圏に戻った。弱いISMの数値は、4月以来最高値に上昇したより楽観的なマーキットの米国製造業購買担当者景気指数と対照をなしている。統計的には、マーキットのPMIはISMよりも米国の製造業生産、工場受注、雇用の公式指標をよりよく追跡する。 総合すれば、世界の製造業リセッションが終息し、強い消費支出と改善する住宅市場が国内需要を支えるにつれて、米国経済は今年後半にやや強い成長を示す可能性が高い。 II. 金融市場 グローバル・アセット・アロケーション 市場は「成果を見せてくれ」段階に入っている。株式が持続的に上昇するためには、より良い経済指標と貿易交渉の実質的な進展が必要だ。そのため、投資家は当面下方リスクに備えるために通常より大きめの現金ポジションを維持すべきだ。 チャート24成長が回復すれば株式は債券をアウトパフォームするだろう 成長が回復すれば株式は債券を上回る 成長が回復すれば株式は債券を上回る 幸いなことに、リスク資産価格の下落は一時的である可能性が高い。貿易緊張が和らぎ、我々が予想するように今年後半に世界成長が回復すれば、株式とスプレッド商品は12か月の期間で国債を大きくアウトパフォームするだろう（チャート24）。 確かに、この楽観的な12か月の推奨を覆す要因は数多くある：世界成長がさらに悪化する可能性；貿易戦争が激化する可能性；供給側のショックで石油価格が再び急騰する可能性；英国が「ハード・ブレグジット」でEUを離脱する可能性；そして最後に、エリザベス・ウォーレンあるいはその他の極左候補が次期米国大統領になる可能性などだ。 今日における投資家の主要な問いは、これらのリスクが金融市場に十分に織り込まれているかどうかだ。我々は織り込まれていると考えている。チャート25は、利益利回りと実質債券利回りの差として計算した我々の世界株式リスクプレミア（ERP）の推定値を示す。我々の計算は、株式は依然として債券に比べてかなり割安に見えることを示唆している。 チャート25A株式リスクプレミアは依然かなり高い（I） 株式リスクプレミアムは依然としてかなり高い（I） 株式リスクプレミアムは依然としてかなり高い（I） チャート25B株式リスクプレミアは依然かなり高い（II） エクイティ・リスクプレミアは依然としてかなり高い（II） エクイティ・リスクプレミアは依然としてかなり高い（II） ERPが高いのは今日の超低水準の債券利回りが非常に低い成長見通しを反映しているからに過ぎないと異議を唱える者もいる。その主張には一理あるが、人々が考えるほどではない。過去10年間で米国のトレンド国内総生産成長率は低下したが、債券利回りはさらに大きく低下した。議会予算局が推計する米国の潜在的な名目国内総生産成長率と10年物米国債利回りの差はほぼ2％で、1979年以来の最大となっている（チャート26）。 チャート26債券利回りはトレンドの名目国内総生産成長率よりも大きく低下した 債券利回りは名目GDPのトレンド成長率よりも大きく下落した 債券利回りは名目GDPのトレンド成長率よりも大きく下落した 世界レベルでは、トレンドの国内総生産成長率は1980年以降ほとんど変わっていない。これは主に、成長の速い新興市場が現在世界経済に占める割合を拡大しているためだ（チャート27）。大手多国籍企業にとっては、国内成長よりもグローバル成長の方が経済の勢いを測る上でより重要な指標である。将来の株式リターンの見通し 高いERPは単に株式が債券に対して相対的に魅力的であることを示しているに過ぎません。株式の今後のリターンを絶対的に評価するには、評価水準の絶対レベルを見るべきです。 チャート27世界の成長トレンドは成長の速い新興国（EM）によって安定を保っている チャート27 世界の成長トレンドは、成長の速い新興国（EM）のおかげで堅調に推移している。 世界の成長トレンドは、成長の速い新興国（EM）のおかげで堅調に推移している。 チャート28S&P 500：マージンの上昇はすべてITセクターで発生している S&P 500：マージンの増加はすべてITセクターで生じている S&P 500：マージンの増加はすべてITセクターで生じている 我々が最近のレポート「TINAに救いを求めるか？」で主張したように、2 アーンニングス・イールドは株式の期待実質トータル・リターンの代用指標として用いることができます。経験的には、このことは裏付けられているようです：1950年以降、米国株式のアーンニングス・イールドは平均で6.7％であり、実質トータル・リターンは7.2％でした。 現在、米国株のトレーリングおよびフォワードのPERはそれぞれ21.1と17.4にあります。将来のリターンの指標として両者の単純平均を用いると、米国株は長期的に実質トータル・リターンで5.2％をもたらすはずです。これは歴史的な平均を下回りますが、それでもかなりまずまずのリターンです。 この計算は、米国のアーンニングス・イールドが異常に高い利益率によって一時的に嵩上げされているため、見込み株式リターンを過大評価していると異議を唱える者もいるでしょう。しかしこの議論の問題点は、S&P 500のマージン上昇のほとんどがたった一つのセクター、すなわちテクノロジーで発生していることです。テックセクターを除けば、S&P 500のマージンは歴史的平均から大きくは離れていません（チャート28）。もし高いITマージンが、強力なネットワーク効果や独占的な価格設定力に恩恵を受ける「勝者総取り」型の企業の台頭のような、グローバル経済における構造的変化を反映しているならば、それらは当面の間高止まりする可能性があります。   地域別およびセクター別の株式配分 アーンニングス・イールドは米国外では概ね2ポイント高く、長期的には非米国株が米国株を上回ることが示唆されています。先進国市場では、ドイツ、スペイン、英国が特に割安に見えます。新興国（EM）では中国、韓国、ロシアが非常に魅力的な水準にあります（チャート29）。セクター水準では、景気循環株がディフェンシブ株よりも魅力的に見えます（チャート30）。 チャート29米国株は同業他国と比べて割高に見える 2019年第4四半期のストラテジー見通し：『実証を求める』マーケット 2019年第4四半期のストラテジー見通し：『実証を求める』マーケット チャート31経済成長は12か月の期間で株式を動かす 経済成長は12か月の見通しでエクイティを牽引する 経済成長は12か月の見通しでエクイティを牽引する チャート30景気循環株はディフェンシブ株よりも魅力的である 景気循環株はディフェンシブ株より魅力的 景気循環株はディフェンシブ株より魅力的 チャート32世界成長が改善すると新興国（EM）およびユーロ圏株式はたいていアウトパフォームする 世界経済の成長が改善すると、新興国株式（EM）およびユーロ圏株式は通常アウトパフォームする 世界経済の成長が改善すると、新興国株式（EM）およびユーロ圏株式は通常アウトパフォームする バリュエーションは主に長期リターンの指標として有用です。例えば12か月の期間では、景気、金利、為替に何が起こるかといった景気循環要因がより重要になります（チャート31）。 幸いなことに、我々の景気循環に関する見方は概ねバリュエーションの評価と合致しています。より強い世界成長、より弱いドル、そしてコモディティ価格の上昇は、ディフェンシブよりも景気循環株に恩恵をもたらすはずです。新興国（EM）および欧州の株式市場が米国株に比べてより景気循環色の強いセクター構成である程度において、前者は最終的にアウトパフォームすることになるでしょう（チャート32）。 我々は、世界成長が再加速し始めれば年末までに金融セクターをアップグレードするセクターリストに加えたいと考えています。債券利回りの低下は銀行利益を圧迫してきました（チャート33）。利ざや（ネット金利マージン）への逆風は利回りが上昇し始めると緩和されるはずです。現在フォワード予想利益の7.6倍、簿価の0.6倍で取引され、配当利回りが6.3％と高い欧州の銀行は特に好成績を収める可能性があります（チャート34）。 チャート33A金利上昇とイールドカーブの上方化は金融株に有利に働く（I） 債券利回りの上昇とイールドカーブのスティープ化は金融株に恩恵をもたらす（I） 債券利回りの上昇とイールドカーブのスティープ化は金融株に恩恵をもたらす（I） チャート33B金利上昇とイールドカーブの上方化は金融株に有利に働く（II） 債券利回りの上昇と利回り曲線のスティープ化は金融株に有利（II） 債券利回りの上昇と利回り曲線のスティープ化は金融株に有利（II） チャート35が示すように、金融株への投資はバリュー株への投資と似ています。過去12年間でグロースはバリューを圧倒しましたが、今後12～18か月ではバリューにとってひと息つける局面が訪れるでしょう。 チャート34欧州の銀行は魅力的である 欧州の銀行は魅力的だ 欧州の銀行は魅力的だ チャート35バリューは反転の兆しを見せているか？ バリューは転換点にあるか？ バリューは転換点にあるか？   フィクスト・インカム チャート36A成長加速で利回りは上昇するはずである（I） 成長が強まれば利回りは上昇するはず（I） 成長が強まれば利回りは上昇するはず（I） ハト派的な中央銀行と、当面は依然として抑制されたインフレが、今後12か月にわたり政府債利回りを抑制するのに寄与するでしょう。それでも、利回りはより強い世界成長を背景に現在の低水準から上昇するはずです（チャート36）。     チャート36B成長加速で利回りは上昇するはずである（II） 成長が強まれば利回りは上昇する (II) 成長が強まれば利回りは上昇する (II) 債券利回りは、中央銀行が予想より多くあるいは少なく政策金利を調整するかどうかによって上昇したり低下したりする傾向があります（チャート37）。投資家は現在、FRBが今後12か月でさらに80ベーシスポイントの利下げを行うと見込んでいます。我々はFRBが10月30日に25ベーシスポイントの利下げを行うと考えていますが、その後の追加利下げは見込んでいません。この緩和局面での累積75ベーシスポイントの利下げは、1990年代のミッドサイクルの景気減速期（1995/96年および1998年）で行われた緩和に相当します。総じて、米国の10年物金利は2020年中頃までに再び2％台前半に入る可能性が高いです。 チャート37Aより強い経済成長は政府債利回りに上方圧力をかける（I） より強い経済成長は国債利回りに上方圧力をかける（I） より強い経済成長は国債利回りに上方圧力をかける（I） チャート36Bより強い経済成長は政府債利回りに上方圧力をかける（II） より強い経済成長は国債利回りに上方圧力をかける（II） より強い経済成長は国債利回りに上方圧力をかける（II） チャート38米国の政府債利回りは海外の利回りよりも景気循環的である 米国国債の利回りは海外の国債利回りより景気と同方向に動きやすい 米国国債の利回りは海外の国債利回りより景気と同方向に動きやすい 米国株が海外の株に比べて低ベータである傾向があるのとは対照的に、米国債は高ベータを持っています。これは、世界の債券利回りが総じて上昇するときに米国の国債利回りが海外よりも大きく上昇し、世界の債券利回りが総じて低下するときに米国の国債利回りが海外よりも大きく低下することを意味します（チャート38）。  さらに、為替ヘッジコストを考慮に入れると、米国債は現在ほかの債券市場よりも利回りが低くなっています（表1）。今後12～18か月で米国利回りが海外よりも大きく上昇するようなことがあれば、米国債のリターンはさらに損なわれるでしょう。その結果、投資家はグローバルな政府債ポートフォリオの中で米国債のウエイトを低めにすべきです。 世界的な成長の強さはコーポレート・クレジット・スプレッドを抑えるはずです。米国の商業・企業向け貸出の貸し出し基準は緩和方向に戻っており、これは通常コーポレート・クレジットにとって強気材料です（チャート39）。我々の米国債券ストラテジストによれば、ハイイールド社債のスプレッド、そして程度は小さいもののBaa格付けの投資適格スプレッドは、経済ファンダメンタルズから見てまだ広めに残っているとされています（チャート40）。3 一方で、より高格付けの投資適格債は相対的な割安度が小さいです。 表1先進国における債券市場の比較 2019年第4四半期 ストラテジー見通し：証拠を求める市場 2019年第4四半期 ストラテジー見通し：証拠を求める市場 チャート39貸し出し基準の緩和はコーポレート・クレジットに良い影響を与える 貸出基準の緩和はコーポレート・クレジットにとって好材料だ 貸出基準の緩和はコーポレート・クレジットにとって好材料だ チャート40米国コーポレート：Baaとハイイールド債に注目 米国コーポレート債：Baaおよびハイイールド・クレジットに注目 米国コーポレート債：Baaおよびハイイールド・クレジットに注目     今後18か月を超えて見ると、インフレが実質的に上昇し始める確率は高いと考えられます。G7全体の失業率は数十年ぶりの低水準に低下しています（チャート41）。完全雇用に達した先進国の割合は新たなサイクル高水準に達しています（チャート42）。フィリップス曲線は死んだといわれることが多いにもかかわらず、賃金の伸びは労働市場の余裕度となお密接に相関しています（チャート43）。 チャート41失業率は低下トレンドを保っている 失業率は低下傾向が続く 失業率は低下傾向が続く チャート42先進国：完全雇用が新たなサイクル高に達している 先進国市場：完全雇用がサイクルの新高値に達している 先進国市場：完全雇用がサイクルの新高値に達している チャート43フィリップス曲線は健在である フィリップス曲線は健在だ フィリップス曲線は健在だ 賃金が上昇し続けると、物価も上昇し始め、賃金・物価のスパイラルを引き起こす可能性があります。その時点でFRBをはじめとする中央銀行は利上げを始めざるを得なくなります。一度金利が制約的な水準に入ると、株式は下落し、クレジット・スプレッドは拡大するでしょう。2022年には世界的な景気後退が生じる可能性があります。 通貨とコモディティ チャート 44ドルは逆循環通貨である ドルは景気循環に逆行する通貨だ ドルは景気循環に逆行する通貨だ 米ドルは逆循環通貨であり、世界的な景気循環とは逆の方向に動く傾向がある（チャート 44）。現時点では米ドルの方向性について強い短期見解は持っていないが、世界成長が反発し始めるにつれて年末までに米ドルは弱含み始めると予想している。 EUR/USDは2020年中頃までに約1.13に上昇する見込みだ。GBP/USDは1.29に上昇するだろう。USD/CNYは7に戻る。USD/JPYは横ばいとなる公算が大きく、これは円の防衛的性格と消費税引き上げによる日本の成長への下押しを反映している。 貿易加重ドルは2021年後半まで下落し続け、その後はより積極的な連邦準備制度（Fed）と世界成長の減速により米ドルは再び上昇するだろう。 ドルが弱含む期間中、コモディティ価格は上昇する（チャート 45）。 チャート 45ドル安はコモディティに恩恵をもたらす ドル安はコモディティの追い風 ドル安はコモディティの追い風 BCAのコモディティ・ストラテジストは、12カ月の視野で特に原油に強気である（チャート 46）。彼らは、世界成長の強化と生産抑制により石油在庫水準が低下すると予想しており、ブレント原油価格は年末までに1バレル当たり70ドルに上昇し、2020年は平均で1バレル当たり74ドルになると見ている。OPECの余剰生産能力（カルテルが生産可能な量と実際に生産している量の差）は現在歴史的平均を下回っている（チャート 47）。原油備蓄はOECD内でも低下傾向にある。サウジアラビアの備蓄も2015年のピーク以降40％超減少している（チャート 48）。 チャート 46供給不足は継続する 供給不足は続く 供給不足は続く チャート 47停止を相殺するための余剰能力の利用可能性は限定的 2019年第4四半期のストラテジー見通し：「見せてみろ」市場 2019年第4四半期のストラテジー見通し：「見せてみろ」市場 チャート 48主要戦略石油備蓄 主要な戦略石油備蓄 主要な戦略石油備蓄 原油価格の上昇は、カナダドル、ノルウェー・クローネ、ロシアルーブル、コロンビア・ペソといった通貨に有利に働くはずだ。 最後に金について少し触れる。我々は8月29日に金のロングトレードを決済し、20週間で20.5％の利益を確定した。依然として、金はより高いインフレに対する優れた長期ヘッジと見ている。ただし短期的には、債券利回りの上昇が金の勢いをそぐ可能性があり、仮にドル安が金を部分的に支援するとしてもその効果は限定的である。インフレが上振れし始めた時点で、来年末か2021年に金のロングポジションを再度組む予定だ。   ピーター・ベレジン、 チーフ・グローバル・ストラテジスト グローバル・インベストメント・ストラテジー peterb@bcaresearch.com 脚注 1詳細はグローバル・インベストメント・ストラテジー ウィークリー・レポート、「高水準の債務はデフレ的か、それともインフレ的か？」2019年2月15日付をご覧ください。 2詳細はグローバル・インベストメント・ストラテジー スペシャル・レポート、「TINAは救いの手となるか？」2019年8月23日付をご覧ください。 3詳細は米国ボンド・ストラテジー ウィークリー・レポート、「社債投資家は連邦準備制度（Fed）に逆らうべきではない」2019年9月17日付をご覧ください。 ストラテジー & マーケット・トレンド MacroQuantモデルと現在の主観的スコア 2019年第4四半期のストラテジー見通し：『見せてみろ』マーケット 2019年第4四半期のストラテジー見通し：『見せてみろ』マーケット タクティカル・トレード ストラテジック・レコメンデーション クローズド・トレード