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Research
Supportive growth and liquidity - Sep. EM/DM Leading Indicator Watch
Tailwinds are intact for risk assets from growth, policy and liquidity, and our liquidity-driven regime model still favors EM assets over DM.
Local conditions are starting to matter again as we are seeing divergent leading indicator outlooks within different DM and EM economies.
We are adding short CNHINR based on an LPPL sell signal and the strong cyclical backdrop in India.
UK - Inflation sticky above target but real yields now offer value
Japan - More signs of peak inflation, more yen weakness ahead
Canada - Labor market fears priced in, stick with long CADJPY
New Zealand - Growth and inflation LEI resilient, RBNZ expectations too dovish
India - Strong growth, low inflation => stick with equities, short CNHINR on LPPL bubble
Brazil - Falling inflation and growth headwinds to spur more BCB easing
Indonesia - Growing signs of asset price dislocation amid political tensions
South Korea - Improving growth outlook, but low carry could weigh on KRW
Notes
Lessons from previous “no recession” Fed cuts (1984, 1995, 2024)
Asset price behavior after the first Fed cut depends heavily on if a recession materializes or not.
Today, our leading indicators do not foresee a recession, which means the most comparable analogs are the “no recession” Fed cuts in 1984, 1995, and 2024.
The takeaway for today is to expect further gains for equities, a rebound in the dollar, and limited downside for bond yields.
