Business Cycles
The risk-reward of the US dollar is currently positive. If a US recession is not imminent, then US bond yields will move higher, thus supporting the greenback. If the US enters a recession soon, the US dollar will benefit because it is counter-cyclical. Besides, the US dollar has not been as weak as the DXY index suggests.
Yen bulls need patience. The near-term narrative remains bearish on the back of interest-rate differentials. Longer term, it is the most attractive currency the G10, on valuation grounds.
Yen bulls need patience. The near-term narrative remains bearish on the back of interest-rate differentials. Longer term, it is the most attractive currency the G10, on valuation grounds.
China's recovery will be driven by consumer spending in general and on services in particular, while industrial sectors will disappoint.
In this Special Report, we evaluate future prospects for the Australian dollar and Australian government bonds. The currency remains fundamentally cheap, and positioning is very short, but the AUD will continue to underperform in the near-term due to sluggish global growth. Australian government bonds have had a nice run of outperformance over the past year, but it is now time to take profits with given the uncertainty that the RBA will deliver the rate cuts currently discounted.
Innovative Tech will face macroeconomic headwinds in a new “higher for longer” interest regime. Yet, the long-term opportunity of the cohort is tremendous. Investors need to be judicious with the timing of adding new capital to these themes to bolster long-term returns.
Several signs have emerged that the “bad news is good news” rally has run its course. Despite deteriorating economic data, the Fed is expected to maintain its “higher for longer” stance, disappointing the market. A rate cut is likely is only in case of a severe downturn, but that will not offer support to equities, until earnings growth bottoms. We recommend shifting a portfolio toward a defensive stance, and away from cyclicals at this juncture. We downgrade Auto to an underweight, and Capital Goods and Energy Equipment and Services to an equal weight.
In this week’s review, we look at recent data and its impact on currency markets.
Bullish equity sentiment may persist in the second quarter on the Fed’s pause, but tight monetary policy, financial instability, elevated recession odds, extreme US polarization and policy uncertainty, and still-high geopolitical risk should encourage investors to maintain a defensive position for the coming 12 months.
Stay defensive in the second quarter. We can see a narrow window for risky assets to outperform but we recommend investors stay wary amid high rates, supply risks, extreme uncertainty, peak polarization, and structurally rising geopolitical risk.