UK Rates and GBP hit by Disappointing Data

In our March monthly we recommended positioning for lower UK short-term rates based on our weakening long-leading indicator, and we later recommended taking advantage of GBPUSD seasonality – which has seen cable higher in each of the past 13 Aprils – to...

BoE Mood Changes

This post is taken from our April 24th weekly report. Much like the Federal Reserve, the Bank of England has been itching to normalise monetary policy following nearly a decade of providing emergency assistance to the economy. Buoyed by the run up in prices over the...

CZK: Pausing for Breath

Since we highlighted the potential of CE3 markets in July 2017 in light of the global reflation trend, our preferred trade – short EURCZK – has made a modest 2.8%. Even after this relatively anaemic rally, we believe that the koruna will now take a breather. As a...

BoJ to Keep Loose As No Immediate Sign of Target CPI

The set-up in Japan continues to favour a weaker yen. Inflation is coming, but the BoJ will want to be sure the train has arrived at the station before stepping off at the monetarytightening platform. The top-left chart shows the lagged effects of a weaker yen should...

Rising Inflation in China

PPI in China has swung from deflation to relatively high inflation over the last 6 months. Wholesale prices are rising fast, import prices are also rising due to the lagged effects from a weaker yuan are moving sharply higher. (CPI, especially core CPI, had been...

Higher Inflation Expectations to Favour Equities over Bonds

(from our Tactical of November 8th 2016) Bond yields have been rising in most countries, and yield curves have steepened across the developed world.  As the top chart shows, the rise in nominal yields has come from a rise in inflation breakevens, while real yields...

Real Yields Wildly Mispriced Given Stagflation Light

The US now has the worst combination of outcomes, poor growth and rising inflation.  Bond yields are now the most negative they have been in almost forty years.  Only in the 1970s during stagflationary episodes were real yields this negative.    We don’t see a high...

Higher Inflation Target –> Even More Mispriced USTs

A discussion of late has been whether the Fed should raise its inflation target.  We think this would be a bad idea.  Currently, with a 2% target, the Taylor rule implies the Fed Funds rate should be closer to 2%. With a 3% inflation target, the Taylor rule would...
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