Macro Monitor
Three Ds Are Ruining The Fed’s Little Plan
There are three Ds that are ruining the Fed’s little rate hike plan: the Dollar, Disinflation, and the Decline in wealth effect.
Risk Aversion Index— Moved Higher, Stayed On “Higher Risk” Signal
It’s too early to move back into credits; we recommend a defensive stance within the Fixed Income space.
Three Questions & One Answer: From Divergence To Convergence
1) Why The Big Sell-Off In Stocks? 2) Why Didn’t Interest Rates Go Lower? 3) Why Was The Dollar Weaker?
Risk Aversion Index— Moved Higher, Stayed On “Higher Risk” Signal
We expect volatility to persist in the near term as the market deals with uncertainties surrounding the Fed rate hike decision and China. A defensive stance is recommended within the fixed income space.
Re-Deflation: Lower Rates, Wider Spreads
Re-deflation is the period where reflation gives way to deflation or disinflation. It has been so prevalent that it triggered a new “Higher Risk” signal in our Risk Aversion Index.
Re-Deflation—RAI Flashes New “Higher Risk” Signal
The re-deflation theme has been so prevalent that it triggered a new “Higher Risk” signal in our Risk Aversion Index. There are significant negative implications for all risky assets.
Interest Rates And Credits: At A Crossroads
The U.S. 10-year yield looks ready to re-test the ceiling of the previous downtrend...The recent weakness in oil prices brought back some very unpleasant memories from 2014. Implications for breakeven rates and credits are not so sanguine...We are at a crossroads and a cautious stance is warranted.
Time Cycle Mid-Year Update: Going Off Script?
Divergences have emerged: countries on a tightening path (e.g. US and UK) were more or less on track until June; while countries on an easing path (e.g. Germany, Japan, & Australia) went off script, as policy trumped historical patterns.
Risk Aversion Index—Increased But Stayed On “Lower Risk” Signal
However, we recommend a defensive bias within the fixed income space for the time being.
US Bonds
Net outflows continued as the cushion from credit spreads is still inadequate...So far risk contagion from the Puerto Rican bond default has not been an issue. Munis still look attractive relative to Treasuries, and investment grade Corporates...The improvement in credit markets and inflation expectations looks more shaky as oil prices broke below the recent tight range and uncertainty around Greece adds to the overall risk aversion. We reduced these bonds to Unfavorable.
Steeper Yield Curve: All About Inflation
The steepening move in the yield curve is prevalent across many countries and is primarily driven by higher inflation expectations.
Risk Aversion Index—Stayed On “Lower Risk” Signal
While we acknowledge the volatile market environment, we still favor credits within the fixed income space.
End Of The QE Trade? Too Early To Call
The common driver behind the sharp reversal of many recent asset class trends is the unwinding of the ECB QE trade.
Risk Aversion Index Fell Sharply, Generated A New “Lower Risk” Signal
Favor credits within fixed income in the near term but beware of volatility ahead
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