Markets have now accepted two narratives – “higher (interest rates) for longer” and “soft landing”, i.e., normalized inflation without a significant slowdown. In our view, these are not compatible with each other, especially given the high level of debt in the US. The resilience in the economy has been mainly thanks to expansionary fiscal policy […]
The Federal Reserve seems to have finally convinced the markets that interest rates are likely to stay ‘higher for longer’. This has led to a bear steepening in the US Dollar yield curve with the long end at the highest level now since 2007, and moved the sentiment pendulum in equity markets firmly towards ‘fear’…
US inflation data came in somewhat higher than expected, but markets have remained rangebound. Focus has shifted to the outcome of the FOMC where, even though the expectation is that rates will remain steady, forward guidance is likely to have a meaningful impact.
As expected, markets focused on economic data to decide on next steps. Both GDP and employment data suggest that the economy is starting to cool, which should give the Federal Reserve support to pause its hiking cycle.
Several important events took place last week. Nvidia beat already elevated expectations by a wide margin for the second time in a row. The Federal Reserve reiterated in no uncertain terms its intention to keep interest rates ‘higher for longer’. And the BRICS group added six new countries and now represents almost a third of […]
Contrary to expectations at the start of the year, US stock markets have delivered strong returns in 2023. Investor sentiment has also swung from extreme pessimism in October 2022, when markets had corrected sharply, to extreme bullishness in July 2023. Headline economic data supports this change in mood. GDP data reflects an economy that has […]
The downgrade by Fitch of the sovereign risk rating of the United States to AA+, the second time this has happened, has put a lid on the market’s risk appetite. We believe this could be the correcting trigger that we mentioned in our previous newsletter, and is likely to be another good opportunity to add […]
Mood in the markets has shifted to extreme optimism, as the dominant narrative is that the economy has managed to control inflation without going through a recession. Corporate earnings have also been better than feared. We feel it’s time to become even more selective..
US stock market indices have belied widely held expectations and gone up substantially in the first half of 2023. The macroeconomic data, however, is telling a different story. Will the rally continue? It’s possible in the near term as bullish momentum continues. But it’s difficult to see it go on for much longer given the […]
Investors have turned extremely bullish after latest inflation data showed headline CPI dropping to 3%. Our analysis suggests markets are pricing a near perfect environment, which increases their vulnerability to negative developments in the months ahead.