12 Years of VP vs Noise
Sharing the ideas and experiences that have influenced our work
Sustained Eurozone Bond Sell-off Would Raise Chance of Yield Curve Control
Rising bond yields and tightening financial conditions pose a risk to the economic recovery and, in the euro-area, could increase the probability of the ECB formally adopting YCC The recent sharp sell-off and bear steepening in global sovereign debt markets has stoked...
Food Inflation Tailrisks
Food prices are correlated with EM inflation surprises. The current surge in soft grain prices should be monitored in case it spills over into general inflation expectations Food inflation can have outsized impacts on inflation expectations due to the higher frequency...
The Next Commodity Supercycle
There are three big drivers of the commodity supercycle: (1) The long era of monetary-policy dominance is over, leading to a heightening of inflation risks not seen since the 1960s, (2) Investors are deeply underweight and will need real assets such as commodities as a hedge against inflation, (3) Commodities are generationally cheap, both compared to themselves and to other assets
Stay Cautious on UK Stocks
UK equity valuations are among the lowest in DM, but caution is still warranted. We wait for an upturn in our LEI before considering longs in UK domestic stocks UK-specific risks subsided sharply following the conclusion of a bilateral trade deal with the EU at the...
Fed Efforts to Stem Rises in Yields Back on the Table in 2021
Rising yields - driven by increasing inflation expectations after the Democrats’ unexpected clean sweep - are a risk for equities. If yields keep rising then the Fed will be forced to intervene to keep longer-term yields lower At the end of last year we discussed the...
Brazilian Real Pressures Starting to Ease
A rebound in economic activity and near-term stabilisation in the fiscal accounts has alleviated pressure on the Brazilian real Although the economic outlook in Brazil remains shrouded in uncertainty as the Covid pandemic continues to rage, pressures on the currency...
Market Senses Rising Inflation Risks
Inflation remains one of the few areas where there is not an overwhelming market consensus. We see rising inflation risks The market is running out of non-consensus narratives, now that we can see the vaccine being rolled out and the potential for a strong economic...
European Property Surge Set to Continue
Aggressive monetary expansion and a slowdown in construction activity have underpinned surging property prices. Both dynamics will keep fuelling the rally In the decade following the global financial crisis, unprecedented low funding costs and the search for yield...
Sweep Elections and Sector Mean Reversion
The best performing sectors before sweep elections tend to underperform afterwards, and vice versa We dig through the historical data on previous sweep elections and come to two conclusions: 1) sweep elections do mark changes in relative sector performance; and 2) the...