Yield Curve: Forwards Hold some Clues

The 2s10s yield curve continues to grind incrementally lower, but negative carry is becoming a formidable headwind. One year carry on this part of the curve is a punitive 28bps. We are also seeing the forward yield curve struggling to flatten any more (top-left...

If China loses, who wins?

With China taking the brunt of the escalating trade war, we have identified several economies that could benefit from China’s loss (assuming that President Trump continues to focus on China and does not pursue blanket tariffs on all exporting nations). To gauge this,...

What’s Good for Workers is Bad for Companies

Recent data from the labour market and the National Federation of Independent Business shows that wages will be picking up quickly this year. The NFIB compensation plans is now at the highest point in the last twenty years. Small businesses expect to raise wages, and...

Headwinds for US Manufacturing

The US manufacturing ISM is currently at levels last seen before the 2008-09 recession. While this reflects the recent optimism about growth prospects in the US, we see several headwinds to the industrial sector. The top-left chart shows the ISM against the VP...

Extreme Complacency on Russell 2000: Buy Puts

(from our Weekly of 21st February) As we have been noting, the market remains in a risk-on regime, with positive momentum, falling volatility and confirmation from various inter-market relationships such as cyclical stocks outperforming high dividend stocks, 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...