Macro Monitor
A Cross-Asset Dash For Cash
March’s mad dash for cash didn’t stop with rates/credit/FX markets. Among equities, there was also a strong preference for cash liquidity. The market rewarded companies that had strong cash positions and punished those without—which explains why traditionally defensive styles actually underperformed.
Double-Digit Yield & Double-Dipping Curves
As the coronavirus materially increases the odds of a recession, some important parts of the U.S. yield curve (10Y-3M; 5Y-2Y) double-dipped into inversion. The two prior episodes occurred in late 1989 and mid-2006 and, in both cases, a recession followed within 18 months.
Risk Aversion Index: Stayed On “Higher Risk” Signal
We will remain cautious toward lower-grade credit until we see the peak in new coronavirus cases. It all comes down to the recession call and the coronavirus has significantly increased recession risk.
Coronavirus—An Accelerator, Not A Catalyst
Chinese and Hong Kong markets are currently following the same script as seen during the SARS outbreak, but we caution against using S&P 500 performance as a guide for what is likely to happen this time around.
Risk Aversion Index: New “Higher Risk” Signal
We are turning more cautious toward lower-grade credit and will likely remain so until we see the peak in new coronavirus cases.
The Decade Of U.S. Exceptionalism & The Year Ahead
Two words sum up the past decade pretty nicely: U.S. Exceptionalism. The superiority of U.S. assets really comes down to the unique combination of growth (U.S. stocks), yield (U.S. bonds), and relative safety (both U.S. stocks and bonds).
Risk Aversion Index: Stayed On “Lower Risk” Signal
While the overall near-term tone is still positive for risky assets, complacency seems widespread too. This tempers our enthusiasm to chase risky assets at this point.
Slowdown Or Recession? No Confidence In “Confidence”
The ultimate question is whether the Fed’s recent “insurance cuts” are enough to overcome uncertainties about trade talk—and the upcoming election—to avert a recession. We updated our “Slowdown vs. Recession” study to see where we stand now. The bottom line is: It’s too early to rule out a recession.
Playing With Fire & Ice—An Inflation Scorecard
We put together an Inflation Scorecard that monitors two critical sets of inflation drivers: demand pull and cost push. The qualitatively-adjusted score is much closer to a neutral reading than the mechanical composite (which suggested quite a bit more disinflationary headwind).
Risk Aversion Index: New “Lower Risk” Signal
We are turning favorable again toward credit, especially emerging market sovereign debt.
Cross-Asset Cross Currents—All About The Recession Call
September was an emotionally exhausting month for investors as reversals in major themes produced wide-ranging repercussions. Movements in various markets have been increasingly tied to bonds—the market that is most sensitive to recession outlook.
Risk Aversion Index: Fell But Stayed On “Higher Risk” Signal
Recent data has certainly increased the risk of an imminent recession, but more confirmation is needed to move us into the recession camp.
From Hongkongitis To Hongkongoma
We call the current problem in Hong Kong, Hongkongoma, a complex problem underpinned by an ever-widening wealth gap and aggravated by an anti-mainland sentiment as a result of HK’s lost sense of superiority. The Extradition Bill is just the latest trigger.
Risk Aversion Index: Stayed On “Higher Risk” Signal
More and more signs are pointing to investors’ loss of confidence in central banks’ ability to revive the global economy. We maintain “neutral” on all credit classes.
When A Cut Is Not Enough
The recent rate cut managed to bring policy uncertainty back into the market by two seemingly harmless words—”mid-cycle adjustment.”
Risk Aversion Index: Stayed On “Higher Risk” Signal
A hawkish Fed cut, immediately followed by Trump’s new tariffs, caused quite a bit of market indigestion, a clear reminder of how quickly things can change.
Risk Aversion Index: Stayed On “Higher Risk” Signal
Our Risk Aversion Index fell in June but stayed on the “Higher Risk” signal generated in May.
Slowdown Or Recession? Confidence Is Key
The pattern of sharp sell-offs followed by equally sharp rallies continued in June. Most risky assets recouped nearly all the losses suffered in May, and then some.
All That You Don’t Hear About The Curve
While the 10Y-3M curve inversion does warrant extra attention, movements in other parts of the curve also need to be taken into consideration.
Risk Aversion Index: New “Higher Risk” Signal
Our Risk Aversion Index rose sharply in May and generated a new “Higher Risk” signal. We continue to monitor EM assets closely, given their leading tendency. Both Chinese stocks and the Yuan have stabilized a bit lately, which is encouraging... but they are not out of the woods yet.
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