Currencies

Our latest report analyzes home bias in bonds and equities across 15 countries. The verdict? 

Hedged international bonds outperform domestic peers, especially during high inflation. In equities, even top markets like the US have had multi-year periods of underperformance. Allocators should leave patriotism aside when running their portfolios.

In this chartbook, we look at the balance of payments across DM and EM countries. The US does not fare well, but neither do a few other countries.

The dollar is breaking down, as capital leaves the US. The important question investors must answer is how much downside is left for the greenback, and whether depreciation will continue in a straight line over the coming months or pause (and even stage a countertrend rally).Tactically, we will be…

Alligator Bite #1: As US net portfolio inflows decline (the alligator's upper jaw closes), its current account deficit must narrow (the lower jaw will also shut). Alligator Bite #2: As the US current account deficit shrinks (the lower jaw closes), current account surpluses in the rest of the world will narrow (the upper jaw will come down).

Downward pressure on the pound will rise in the coming months. Inflation will go up, so will bond yields. It’s time to book profits on Egyptian domestic bonds.

MacroQuant’s US equity z-score is dangerously close to the -1 threshold. Moves below that threshold have reliably coincided with equity bear markets in the past. As such, MacroQuant recommends an underweight on stocks, offset by an overweight on bonds and cash.