Secession/Breakup
To cheaply hedge against a "Leave" vote, go long U.K. inflation protection, reduce exposure to U.K. corporate debt, and position for a steepening of the Gilt curve.
The ECB's intended purchases of corporate bonds will not sustainably lift the asset-class. But we have found a compelling long-term opportunity in the sovereign bond market, and a way to hedge Brexit risk.
Several tail risks appear less ominous compared to last month. Nonetheless, the earnings outlook has not improved and the FOMC will turn more hawkish ahead of the June meeting. Stay defensively positioned.
The British pound may be prone to further weakness in the coming months as the odds of a Brexit rise.
Most of the economic arguments in favor of the U.K. leaving the EU do not carry much weight, as we discuss in this collaboration between BCA's <i>Geopolitical Strategy</i> and <i>European Investment Strategy</i>. However, the probability is a coin toss - much higher than investors tend to think. We review the geopolitical and investment implications of the "Leave" and "Remain" scenarios.
Sterling has come under intense pressure since PM Cameron announced date of the EU referendum. Our bearish view on the British pound has not been based on a forecast of U.K. succession from the EU.
Where is the most likely mispricing of interest rates today? Plus our latest thoughts on the U.K.'s June 23 referendum on EU membership, and its market implications.
Global trade is plummeting as commodity prices remain depressed and emerging markets unravel. Even if oil were not plumbing new lows, we would remain bearish on EM economies, where poor governance and low efficiency suggest that more crises will rear their heads. Above all, we are watching China for policy clarity. After seizing 14% of global exports in recent years, it is now exporting surplus goods into an already deflationary world. Protectionism - not a coordinated response among leading countries - is the likely result. In essence, we reiterate our theme that globalization has peaked. Along the way, we call attention to five geopolitical "Black Swans" that <i>no one</i> is talking about.