12 Years of VP vs Noise
Sharing the ideas and experiences that have influenced our work
Neutral on Industrial Commodities Despite Low Inventories
There has been much commentary pointing out low inventories for industrial commodities and the potential for a squeeze higher in prices. Inventories are indeed very low (as shown in the top left chart using LME warehouse data) but this seems to have been a persistent...
ISM key for US economy, not Iran
Only a few weeks ago, top-of-mind risk for market participants was the trade war, according to BAML’s Global Fund Manager Survey. Now it is highly likely the list would be topped by tensions in the Middle East after the US assassination of the Iranian general, Qasem...
UK optimism has room to run
Weak sentiment and rising leading indicators combined with a supportive central bank is the best combination for asset markets. Sentiment towards the UK has been dismal, but with the ruling Conservative party’s much larger than expected victory at the General...
Autos will lag other rate-sensitive sectors
The auto and housing sectors are two parts of the economy that are highly sensitive to interest rate changes. In light of the Fed’s dovish pivot at the start of the year, culminating in 3x25bps of interest rate cuts, we would expect activity in both sectors to surge....
Outlook stable for Europe and UK consumer
With global trade headwinds intensifying and many governments still reluctant to turn on the spending taps (for now), the burden of growth remains with the consumer. In the eurozone, consumer conditions appear relatively mixed. There is a divergence between soft and...
Remain Selective on EM Debt
We continue to favour EM sovereign debt as an alternative to stretched developed-market debt. We like the higher initial yields on offer and potential capital upside from monetary easing and rolldown from steeper yield curves (top-left chart). If we looked only at...
Dollar to come under growing pressure
Our view on the USD for 2019 was that it would face modest downwards pressure. The pressure has been modest, but it has been to the upside. Nonetheless, overall the dollar (DXY) has been in a tight range this year (~4.5%). Every attempt to the upside has been met by...
Intermarket Gauges suggest recession or risk-on
The S&P has been very resilient this year in the face of slowing growth, falling earnings and trade war uncertainty. However, underneath the surface, market rotations have been very bearish. Over the past year, high-yield credit has underperformed investment grade...
Global Trade Key Driver of EM Returns
Since the peak back in April, most EM equities markets have seen declines or consolidation (top-left chart). The temptation is to view this as a buying opportunity to front-run more aggressive central bank easing (especially from eg the PBoC in China). Although we...