Financial Markets

Top-down measures of nonfinancial corporate sector balance sheet health have been flattered in recent quarters by inaccurate data on interest expense. After correcting for the inaccurate data, we see that our best measures of corporate balance sheet health show a persistent steady deterioration.

While we are sympathetic to the view that the Fed could temporarily achieve a soft landing, we are skeptical that it could stick that landing for very long. Stocks could strengthen into year-end, with small caps potentially leading the charge. But the rally will fizzle out next year as the global economy begins to sink into recession.

In this report, we highlight why there are upside risks to Brent crude oil and copper prices going into 2024, with the production side expected to drive deficits in these markets. To take advantage of a potential rally, we suggest basket plays for hedging this outcome.

The implications of this morning’s CPI report for Fed policy, Treasuries and TIPS.

While Chinese stocks have low valuations and are oversold, their attractiveness is dampened by uncertainties in the magnitude of stimulus and the dismal outlook for corporate profits in the next six to nine months.

Real wages are set to rise in CE3 economies with implications for their asset markets and currencies. Of the three, Polish assets and the zloty are the most vulnerable.

Magnificent Seven leadership is neither a new nor an unnatural phenomenon. There is no shortage of reasons why equities might have already made a top, but investors should not be tricked into thinking that the rally was somehow specious.

If we look at global growth as an aircraft, the plane is experiencing failing engines and will lose more altitude in the coming months. Yet, neither Chinese authorities, nor the Fed or the ECB will be quick to come to the rescue as global growth downshifts. These dynamics herald a stronger US dollar and lower EM risk asset prices.