Bond Yields Diverge from Inflation

Bond yields are currently diverging in a very big way from economic fundamentals, and our valuation tools point to a rise in yields.  Normally, there is a very tight correlation between the change in the ISM prices paid survey and…


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US Profit Margins to Fall Further

Equity prices are rising and being driven by momentum, but profit margins are set to fall further in line with late-cycle wage pressures and tightness in the labour market.  The biggest cost to businesses is the cost of employees, and…


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Financial Conditions Ease, but Growth to Remain Weak

Two of the best global leading indicators tools we have are VP’s Business Cycle Financing Index (BCFI) – which tracks financial conditions, eg are central banks easing or hiking, credit spreads widening or tightening (first chart) –  and the global yield…


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More TED Spread Widening on the Way

(from our Tactical report of 26th July) One of the early warning signs of the 2008 crisis was the widening in credit spreads such as the Ted spread and the Libor-OIS spread.  There was a run on the shadow banking…


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EQUITIES: LOW PROJECTED RETURNS FOR UTILITIES SECTOR

A theme we have been tracking throughout the summer has been the very low projected returns over the next 6 months for the utility sector globally, as investors have crowded into defensives. We highlight this below with two charts showing…


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Negative Feedback Loop in Europe

While most of the attention post-Brexit has been on the UK, we are far more concerned about Europe.  Markets and the economy operate in a feedback loop, and the performance of European banks relative to the stock market points to…


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USD to Continue Weakening Bias as Risk Recedes

Brexit predictably caused the USD to rally, as any global risk-off episode will do.  However, we reiterate our view that the USD will have a tendency to weaken, after the current rally dies out (which it already appears to be…


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Smaller Impact on USD from Fed Rate Rises

(from our Tactical of 31st May) We have long argued of a dovishly leaning Fed with Janet Yellen at the helm. The market eventually got the Fed’s message.  The total hikes priced in over the next 6 months were stable…


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More Negative Outlook for the US Economy

Just as the Fed looks like it’s gearing up for its second rate hike in ten years, we get some disappointing news from the US economy.  Building permits in the US, whose growth has been trending down, are now contracting…


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Brazil: Speculators Take Profits on BRL and BRL Assets

We turned bullish on Brazil back in February.  Our leading indicators had been turning up, the effects of previous Selic hikes had begun to recede, and we expected inflation would fall, opening up the path for interest-rate cuts.  Year-to-date, Brazil…


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