Economy

In this report, we identify 5 key signposts that will mark a turn in the dollar. These include technical conditions, foreign real interest rates, US (and global) yield curves, Chinese economic conditions and geopolitics. We then assess whether it is time to short the dollar.

As the FOMC explicitly acknowledged this week, monetary policy operates with substantial lags. We see the risks to stocks as tilted to the upside over the next 6 months but are neutral on global equities over a 12-month horizon.

Copper markets will remain tight on the back of growing physical deficits and pressure on capex. Policy-rate increases by central banks, uncertainty over re-opening in China and its fiscal-stimulus plans in the short run restrain risk taking. In the long run, the implications of China’s inward turn will keep supply-concentration risk for metals high, given its dominance of base-metals refining globally. Notwithstanding the disconnect between physical and futures markets, we remain bullish metals mining equities, and remain long the XME ETF.