Materials

We went overweight the S&P agricultural chemicals index in early May, a contrarian bet to take advantage of extreme bearishness, undervaluation and the potential for a rise in underlying commodity prices. Since then, a rise in industry M&A activity has borne out our thesis of cheap…

Equities are celebrating domestic economic disappointment rather than re-pricing the risk of ongoing profit struggles. This reinforces that liquidity and share price momentum are still the dominant market forces.

Steel share prices celebrated the introduction of punitive import tariffs earlier this year, but that impact may already be wearing off. The latest data show that U.S. steel imports, while still well below the 2015 peak, have hooked back up, and are rising as a share of domestic production.…

The excitement surrounding steel stocks earlier this year on the back of the liquidity-driven bounce in commodity prices, whiffs of stabilization in Chinese economic growth and new steel import duties is diminishing. We used the rally to reduce positions back to underweight several months ago,…

Our <i>Cyclical Indicator Update</i> reveals that a defensive portfolio strategy remains the best bet to navigate the crosscurrents of stagnant profit/economic growth yet abundant global liquidity.

Overweight Our early-May upgrade of the S&P agricultural chemical index proved timely, as Bayer launched a bid for Monsanto, sending the index up sharply. It is tempting to book gains, but if underlying profit drivers continue to move in a bullish direction, share prices should have further…

Risks to global growth remain to the downside. Selling pressure in cyclical markets and assets will escalate. EM currencies will make new lows versus the U.S. dollar, the euro and yen. Take profits on our long JPY/short KRW and long JPY/short SGD trades. Short KRW versus an equal-weighted basket of the U.S. dollar, yen and euro. Continue underweighting Peruvian equities.

Within an overweight allocation to Euro Area corporates versus U.S. corporates, favor single-B rated Euro Area High-Yield and Euro Area Investment Grade sectors that offer higher duration-adjusted spreads.

The bright side to higher food prices is that the S&P agricultural chemical index should finally be finished a brutal bear market. This group has been savaged by the collapse in agricultural commodity prices, worries about the return of Argentine supply and China's future import growth. The…

Last autumn we recommended using weakness in the S&P containers & packaging index to augment positions to overweight, on the basis that that global disinflation would optimize profitability at a time when excess bearishness existed. After all, the decline in global export prices would…