DM Rates Outlook: Rate Cuts Arrive Except Japan

September 24, 2024 9:00 AM UTC

•    For U.S. Treasuries, we see 2yr yields coming down further on our baseline soft landing view, as the Fed moves consistently to a 3.00-3.25% Fed Funds rate. However, with considerable Fed easing already discounted, 2yr yield decline should be modest and 2yr yields should bottom mid-2025. 1

Equities Outlook: Choppy U.S. and Outperformance Elsewhere

September 24, 2024 8:30 AM UTC

 •     We now forecast 5450 for the S&P500 for end 2024, but could see a move to 5200/5000 in the next 3-6 months as volatile data keeps the soft v hard landing debate alive.  On our baseline of a U.S. soft landing, we would see the S&P500 at 5600 by end 2025. The tech sector is still really i

U.S. Outlook: Fed Focus Turning To Downside Risks

September 23, 2024 2:16 PM UTC

•    The U.S. economy is showing clear signs of labor market slowing which poses downside risks to the still impressive resilience of consumer spending, which has sustained healthy GDP growth through Q2 2024. We expect GDP growth below potential in the second half of 2024 and the first half of

Israel/Hezbollah War Risks

August 26, 2024 8:02 AM UTC

The probability of an Israel/Hezbollah war in the next 12 months has move up from low to modest probability, but would be a high impact event geopolitically and for global markets.  For global markets, a distinction would be drawn between an Israel/Hezbollah war that did not involve Iran/U.S. and o

Powell Jackson Hole Guidance

August 23, 2024 2:38 PM UTC

  Fed Powell clearly signaled a Sep 18 FOMC cut, but his analysis on the economy is softer than harder landing.  Though the option of 50bps was not ruled out, the comments from Powell and other Fed officials are more consistent with 25bps than 50bps.  Nevertheless, the Fed is now more focused on

Fed Decision Making/H1 2025 Fiscal Tensions and Yield Curve Steepening

August 19, 2024 8:15 AM UTC

2yr U.S. Treasury yields can fall gradually by end 2025 to 3.25%, as a more neutral Fed Funds era is discounted.  10yr yields ability to decline on a soft landing is more difficult, given high net supply facing the market.  We also remain concerned that the U.S. will see some temporary fiscal stre

Market Turbulence and What has Changed?

August 13, 2024 12:22 PM UTC

 •   We see the recent market turbulence as being partially a reduction in risky positions.  However, the U.S. economy is slowing and triggering a debate about a soft or harder landing (we see slowing rather than recession in our baseline), while EZ data shows the recovery is not gaining moment

EZ and UK Government Bonds: Decoupling From the U.S.?

July 12, 2024 9:37 AM UTC

Different economic and inflation dynamics, plus no constraint from trade weighted exchange rates, means that the ECB and BOE can cut irrespective of the Fed in the coming quarters.  This can see 2yr yields decline, though less so in Germany where a 2.5% ECB depo rate is already discounted.  10yr y

Equities Outlook: Choppy U.S. and Outperformance Elsewhere

June 25, 2024 7:05 AM UTC

 •    U.S. equities are overvalued and waiting for earnings growth to catch-up, which leaves the market choppy, directionless and vulnerable to intermittent 5% corrections. Our forecast slowing of the U.S. economy before Fed rate cuts or nervousness about the post-election prospects are potenti

DM Rates Outlook: Rate Cuts Arrive Except Japan

June 24, 2024 8:45 AM UTC

•    For U.S. Treasuries we see a steady easing process from the Fed from September, which can allow 2yr yields to fall consistently.  However, the decline in H2 2024 will be slower at the long-end from traditional yield curve steepening pressures and then we see fiscal stress in H1 2025 unde

U.S. Outlook: Economy Starting to Lose Momentum

June 20, 2024 6:17 PM UTC

•    The U.S. economy is starting to lose momentum after a surprisingly strong second half of 2023, and we expect the loss of momentum to become more apparent in the second half of 2024, causing a slowing in employment growth from its current strong pace. We expect inflation to resume a gradua

Asset Allocation 2024: Tricky Seven Months Remaining

May 10, 2024 1:06 PM UTC

Fed easing expectations for 2025 and 2026 can shift from a terminal 4% Fed Funds rate towards 3%, as the U.S. economy slows due to lagged tightening effects.  Combined with Fed easing starting in September this should mean a consistent decline in 2yr yields.  However, 10yr U.S. Treasury yields wil

Equities Outlook: Cyclical Recovery Versus Structural Headwinds

March 25, 2024 9:00 AM UTC

 ·        In the U.S., a tug of war between momentum and U.S. exceptionalism on the one side versus valuations and any deviations from the U.S. goldilocks scenario now means volatility and a risk of a correction.  We feel that the U.S. equity market recovery can push onto 5250 for the S&P5

DM Rates Outlook: Rate Cuts Arriving and Positive Yield Curves

March 22, 2024 2:00 PM UTC

U.S. Outlook: Fed to Ease as Economy Gradually Slows

March 22, 2024 10:00 AM UTC

•    The U.S. economy has continued to see growth surprising to the upside supported in particular by consumer spending. While the momentum of the second half of 2023 will be difficult to sustain the economy now looks poised for a soft landing, with risk that continued resilience in the econom

Preview: Due January 11 - U.S. December CPI - Marginally above 0.2% before rounding

January 10, 2024 2:00 PM UTC

Our forecast for the core rate would be a slowing from 0.3% (0.285% before rounding) in November, though similar to October’s outcome of 0.227%.
We expect some slowing from November accelerations in owners’ equivalent rent and medical care though these components should remain stronger than most

Shipping Freight Cost Jump and Inflation – Some Perspectives

January 9, 2024 2:24 PM UTC

Figure 1: Freight Cost Surge in Perspective
Source: DataStream 
How Long?
Houthi rebels have been attacking some ships in the Red Sea in recent weeks.  The key question is how long this will last?  One line of thinking is that the Houthi attacks are part of Iran axis of resistance alongside attacks

AI and Technology Impact on Growth and Inflation

January 3, 2024 10:30 AM UTC

Bottom Line: The full benefits of the latest AI wave will likely not kick in until the late 2020/early 2030’s.However, 5G over the last couple of years has been enabling more connectivity via the Internet of Things and allowing more big data analysis, including AI tools and algorithms. In the 2hal

Preview: Due January 11 - U.S. December CPI - Marginally above 0.2% before rounding

January 2, 2024 5:03 PM UTC

Our forecast for the core rate would be a slowing from 0.3% (0.285% before rounding) in November, though similar to October’s outcome of 0.227%.
We expect some slowing from November accelerations in owners’ equivalent rent and medical care though these components should remain stronger than most

Equities Outlook: Rate Cuts To Help in 2024

December 15, 2023 11:00 AM UTC

Equities Outlook: Rate Cuts To Help in 2024
·        For other DM equity markets, EZ and UK are undervalued in contrast to the U.S., but are in or close to recessions and economic recovery will likely be weak and disappointing.  Though the ECB and BOE will likely ease in Q2 with the Fed, we

U.S. Outlook: Slower Growth to Sustain Improved Inflation Picture

December 15, 2023 10:01 AM UTC

·         Given the strength of recent GDP growth the Fed is rightly cautious about declaring victory on inflation despite recent encouraging progress. Should data surprise to the upside, the Fed could still tighten again, even if it now looks unlikely. However, we believe that data will sh

Preview: Due December 12 - U.S. November CPI - Flat again overall but not quite as soft in the core

December 11, 2023 1:25 PM UTC

Gasoline prices saw accelerated declines in November and this could feed through to other components such as air fares. In the core rate, October’s downside surprise was mostly due to shelter, which came in below trend after an above trend September, and we expect shelter in November to look simi

December Government Bond Volatility

December 10, 2023 2:32 PM UTC

Figure 1: 10yr-Fed Funds (%)
Source: Continuum Economics/Datastream
Government bond yields so far in December have continued the November trend to lower yields, as speculation grows about the scale of easing from DM central banks in 2024/25.  While numerous central banks meet this week, the bond mark

Preview: Due December 8 - U.S. November Employment (Non-farm Payrolls) - Slightly firmer due to returning strikers

December 7, 2023 12:46 PM UTC

October's payroll saw a decline of 35k in manufacturing with 33k of that due to autos, where the monthly strike report reported that 25k were on strike. We expect a 25k increase in manufacturing in November, more than fully due to autos. October's strike report also showed 16k on strike in the motio

Bank of Canada Forecast Fine Tuned, Easing Later but Faster in 2024

October 25, 2023 5:06 PM UTC

The BoC’s updated view
The BoC stated that there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures. There can be little doubt over the first conclusion given recent GDP data, but that the BoC felt able to make the second conclusion i

Navigating the Path to Peace: Saudi Talks on Ukraine-Russia Conflict

August 7, 2023 10:59 AM UTC

Saudi plays peacemaker
The goal of the meeting in Jeddah this weekend was to discuss and potentially agree upon essential principles that could pave the way for a peaceful end to the conflict in Europe. Saudi brought together several stakeholders with diverse interests and perspectives on the conflic

U.S. Outlook: No Recession, but Subdued Growth Will Help to Reduce Inflation

June 21, 2023 9:33 AM UTC

GDP outlook subdued but not recessionary
U.S. economic data has tended to surprise on the upside in recent months, most notably employment growth and most significantly core PCE prices, where the underlying trend appears stuck at a pace a little above 4.0% on an annualized basis. This is off the high

U.S. Outlook: Two Subdued Years for the Economy as Inflation Falls Only Gradually

March 27, 2023 12:43 PM UTC

Source: Federal Reserve, Bureau of Economic Analysis, Bureau of Labor Statistics, Continuum Economics
Source: Continuum Economics
Two Straight Subdued Years for the U.S Economy
The U.S. economy ended 2022 with renewed momentum. Consumers look healthy with the second half of 2022 seeing renewed growth i