Plenty of Cover for Fed to Maintain the “Big Ease”

In our Market Ledger, one of the “debits” for the market is chronic insolvency. We have not really begun to see the full impact on jobs and businesses due to improved unemployment benefits, stimulus cheques and business lending schemes, but that will change as...

There’s Something About the Term Premium

Historically, investors have required extra yield to hold longer-term bonds instead of short-term securities to compensate them for the added uncertainty. Thus, in a “normal” world, term premium (TP) should not be persistently negative. Yet, since 2016, TP has been...

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....

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...

Yields suggest Monetary policy is close to its limits

This post was taken from our weekly report, dated October 15, 2019. In the last month yields have since then done a round trip, falling and then rising again, but crucially term premium (TP) has not fallen. It was TP’s relentless fall through 2019 that meant the...

G3 Central Banks set Tone

The divergence in monetary policy across developed markets since the beginning of 2018 is starting to breakdown as Fed and ECB easing makes it increasingly difficult for the hawkish hold-outs to tighten. Above-target inflation in 2018/early 2019 provided cover for the...

ECB piling easing pressure on BoJ

Japanese equities have fallen out of favour with foreign investors over the past four years, since the initial euphoria of Abenomics faded (top-left chart). This has contributed to Japanese equities’ relatively low valuations, with the Topix becoming increasingly...

Markets Unconvinced of Further Easing by RBNZ

The RBNZ surprised markets by cutting the official cash rate by a greater than expected 50bps, front-running further expected easing from the FOMC, and RBA. Governor Adrian Orr commented that negative rates are “within the realms of possibility”. Despite this clear...

Fed Easing sees Defensive Stocks come out on Top

Over the last five Fed easing cycles consumer staples, healthcare and energy provide the highest average total return above the index one year after the Fed’s first cut. This is not too surprising given that the Fed started cutting as recessions loomed in 2007 and...