Policy
The euro stopped weakening in March 2015, which coincided with the ECB starting its asset purchases. Since then, the ECB's incremental policies have been unable to push the euro lower. The price action speaks to the resilience of the currency and indicates that a lot of bad news has been discounted.
The wide WTI - Brent differentials at the front of these respective curves will continue to incentivize crude-oil exports from the U.S. to European refiners, who tend to favor the light-sweet crude coming out of LTO plays.
This week we are publishing a speech given by Chinese finance minister Lou Jiwei, which is highly relevant and informative in understanding the economic logic of Chinese leadership.
Cutting through the hype that will surround policy initiatives today, the ECB is caught between a rock and a hard place. We explain why, and what it means for investors.
In recent travel, our clients remain focused on downside risks to today's range-bound markets. And for good reason. Uncertainty regarding Chinese reaction function is the biggest source of political risk in today's markets. We discuss it in detail in this month's report, along with an update on our views of Brazil, Russia, and Turkey. In addition, we examine the potential casualties of the European immigration crisis and the likelihood of Donald Trump becoming the president of the United States.
We still recommend a cautious stance on portfolio risk, for both credit and duration exposure, given that monetary policy expectations priced into Developed Market yield curves are already extremely dovish.
Over the coming two weeks, the G3 central banks will be holding key policy meetings that could prove instrumental in setting major FX trends for the next several months. What can currency traders expect?
Near-term, global yields will remain depressed, but the structural forces suppressing yields should abate and even reverse in the long-run. Slower potential GDP growth - and lower commodity prices - will eventually shift from tailwind to headwind for bonds. Stepped-up efforts to increase inflation will boost long-term nominal yields; populist politics and calls to curb income inequality will amplify this trend. Long-term investors should stay neutral global bonds for now, but prepare to shift to a structural underweight beyond this decade.
Are the arguments for overweighting European equities still valid? If so, overweighting relative to what?