Market Returns
Global oil demand will continue to surprise to the upside over the balance of the year - growing at a rate of 1.6 MMb/d - following an unexpected surge over the first five months of 2016.
The secular stagnation narrative is gaining traction amongst the FOMC. Expect further downward revisions to longer run FOMC interest rates forecasts, toward levels already discounted in the Treasury curve.
We prefer to fade the recent fall in yields by moving to neutral on U.K. Gilts and underweight Australia, while maintaining a benchmark overall stance on portfolio duration.
The sinking global credit impulse warns that reflation has not overwhelmed deflationary forces. Financials will continue to suffer, while utilities and retail drug stores will benefit.
The Fed has reason to delay the next rate hike until at least September, even if volatility subsides after the June 23 Brexit vote.
The Brexit vote is a coin toss. We introduce a simple model to estimate the effect of a "stay" or a "leave" vote on various currencies and assets. A "leave" vote could cause GBP/USD to fall to 1.32 or less, creating a tactical buying opportunity. Extreme GBP implied volatility suggests that selling vol is attractive. The Fed decreased its rate projections.
Increasing uncertainty over the Brexit vote will keep the Fed from raising its overnight policy rate at this week's FOMC meeting, but it may not keep the USD from rallying in the event of a decisive win for Brexit advocates on June 23.
Three strategies that could win whatever the outcome of Britain's referendum on EU membership. And what to look out for in the final days before the vote.
At current levels, Treasury yields are consistent with our assessment of fair value. Further, the Fed's Labor Market Conditions Index does not suggest an imminent recession. Expect payrolls to stabilize above levels consistent with further progress on wage growth and inflation, allowing the Fed to hike rates later this year.
For now, maintain a benchmark duration stance leading into the June 23 U.K. Brexit vote, favoring Treasuries and (especially) Gilts over Bunds and JGBs.