Macro Monitor
Rate Hike In Limbo—Positive For Risk Assets
Whether rates hike in September or December, we know the Fed will be very supportive of the market and the biggest beneficiaries will likely be EM and higher-yielding assets.
Risk Aversion Index– Stayed On “Lower Risk” Signal
Given the not-too-hot-not-too-cold macro backdrop, we expect the credit rally to continue in the near term and favor spread products within fixed income.
Policies Trump Politics
We find ourselves in the twilight period where the impact of a rate hike might be waning, while the potential election-year impact might be gaining more influence.
Risk Aversion Index—New “Lower Risk” Signal
We expect the search for yield to continue in the near term and favor Higher Quality credits within fixed income.
A Tale Of Two Exits—How Different Is This Time?
We think the best guide for Brexit is still the 1992 U.K. exit from the ERM. However, most U.K. assets are more expensive than they were back in 1992, and thus more vulnerable to shocks.
Risk Aversion Index—New “Higher Risk” Signal
With global bond yields plumbing new all-time lows, we continue to favor Higher Quality credits within fixed income.
“Teflon” Bonds—The Donald Trump Of Investments
Throw anything at them and bonds can shake it off. The multi-decade march toward ever-lower yields seems unstoppable, not even by the zero line.
Inflation Hindered; Contributing To A Flattening Yield Curve
A stronger dollar and a weaker Chinese yuan dented the prospects for higher inflation in May.
Risk Aversion Index—Ticked Up But Stayed On “Lower Risk” Signal
The real test for risky assets lies immediately ahead with central bank meetings, the Brexit vote, and the Spanish election later in the month. We continue to favor Higher Quality credits within fixed income.
Reflation Trade Back In Vogue? We’d Rather Be Late Than Early
Despite recent improvement in some inflation measures, we are not convinced the war against disinflation has been won. The risk of being too early on the inflation call far outweighs the risk of being too late.
Risk Aversion Index—Stayed On “Lower Risk” Signal
After the last couple months’ strong surge, risky assets are entering a seasonally unfavorable period, with Brexit looming particularly large in the near term. We still favor higher quality credits within fixed income.
The Fed’s Capitulation To The Dovish Side— A Win-Win For EM & U.S.
We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.
Risk Aversion Index—A New “Lower Risk” Signal
We are getting more constructive on credits but we are still keenly aware of the highly volatile market environment and would recommend modest exposure to lower quality credits at this point.
U.S. Investment Grade Corporate Bonds: Maintain Favorable
More spread compression is likely ahead.
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