Policy

The backdrop for corporate bonds is turning more risky after the spread tightening seen over the past few months in the US and Europe. A tour of our favorite corporate spread valuation metrics on both sides of the Atlantic suggests a worsening cyclical risk/reward tradeoff for both investment grade and high-yield bonds, especially in the US.

We discuss the outlook for the Fed’s balance sheet and why QT is likely to continue for at least another year.

Our Central Bank Monitors support the recent shift in tone from central bankers in Europe. Find out what it means for European fixed-income portfolio allocation.

Two developments this week reinforce our key views for 2023. First, Russia’s threat to reduce oil production by 500,000 barrels per day, while escalating the war in Ukraine, confirms that geopolitical risk will rebound and new oil supply shocks are likely. Second, China’s credit numbers for January confirm that the country is trying to stabilize the economy but also that stabilization will not come quickly. Moreover, stimulus does not resolve structural problems over the long run. We remain defensively positioned overall and underweight Chinese assets.

In this Strategy Insight, we go over the RBA’s recent decision and the implications of its hawkish message for AUD trades.

Biden’s State of the Union address will mostly be blocked by a gridlocked Congress. The one point of agreement, big spending, spells trouble over the long run, even if a technical default is avoided this fall.

The Fed is betting that the usual non-linearity of unemployment is different this time, but so far, there is nothing to suggest that it is different. We discuss the key signposts to watch out for, plus the implications for interest rates and asset allocation.

In this Strategy Insight, we go over the RBA’s recent decision and the implications of its hawkish message for AUD trades.

The Fed’s actions at its meeting last Wednesday were no surprise – downshifting to 25 basis points while guiding for more hikes was widely expected – but Chair Powell’s newly conciliatory tone at the press conference helped to spark a two-day equity rally. We remain overweight equities, expecting the S&P 500 to rally into the mid-4,000s at some point in the first half.

This week, we articulate what the actions of the three major central banks that met (Fed, ECB and BoE) mean for currency markets. This is within the context of our analysis of the latest data releases in the G10, that allows us to calibrate currency strategy.