BOJ Putting Pressure on Other Asian Central Banks

Further yen weakness, in an environment of slowing global growth, will put pressure on other central banks to ease policy.  Although attention is rightly focused on the ECB, Japan’s biggest trade partners, who derive significant parts of GDP from trade…


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Swiss Gold Referendum: A Spanner in the Works

As polls continue to swing around ahead of the Swiss gold referendum on 30th November, we expect increased volatility in the FX and gold market.  After the implementation of the EURCHF floor, gold’s share of the SNB balance sheet has…


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P/Es Waning As A Source of US Equity Returns

After some very strong years, multiple expansion in the S&P is struggling to contribute to returns in the index.  So far this year, P/E multiple expansion has only contributed 32% to S&P returns (top chart).  More reliance is being placed on top-line…


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Target2 Imbalances Widen Again – Watch Italy

Target2 – the payment system used for intra-eurozone transfers – has widened again, with the largest two-month move since mid 2012. A look into its breakdown reveals that it is Italy that is almost completely responsible for the increase in…


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Economic Downturn Evident in Chemical Prices

Chemical prices tend to provide a good lead on global economic conditions and the message at the moment is unambiguously negative.  Falling naphtha, polymer and Brent oil prices are indicative of very weak global economic conditions. Source: Variant Perception and…


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Pillars of Equity Rally Fall Away

Stock buybacks have been an important feature of the equity rally. Companies have used low rates and easy credit to borrow money and used it to buy their own shares back.


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Long-term Real Yields’ Decline Implies Stagflation

Yield curves almost everywhere have been flattening. At the long end of yield curves, bonds have been rallying all year. This is to be expected in Europe, where growth remains lacklustre, inflation is very weak, and the ECB is firmly in easing mode. However, even in the UK and the US, where the market has been gingerly pricing in the beginning of (perceived) hiking cycles, long bonds have been rallying.


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Eurozone Growth Stuck in a Quagmire

Eurozone growth goes from setback to setback with last week’s GDP number being just the latest in a long line of similar disappointments. Soft indicators have consistently overstated the strength of this year’s recovery, and the unpleasant truth is that as one country after another has swooned under the summer heat we are down to Spain as ‘last man standing’. Our leading indicators are pointing to anaemic growth ahead for much of the eurozone and Russia’s recent food sanctions on European agriculture will only add to the downturn.


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US Inflation and Wages Continue to Turn Up

The key message from our leading indicators is that US inflation and wages continue to turn up. This was one of our core themes for 2014 we discussed in December last year and is bearing out. Core inflation and headline inflation are positive, while wages are turning up sharply. This has implications for profit margins. Wage increases inversely lead US corporate profits by two years. We have with very high likelihood seen the peak in profit margins, and we would expect them to fall.


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Deflation not a danger, modest inflation with wage growth ahead

While markets are fixated on the threat of deflation and “lowflation” (a dumb word if ever there was one), our leading indicators are pointing towards modest core inflation ahead. Furthermore, our leading headline inflation indicator is rising moderately as well. We don’t have hyperinflation,…


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