ECB: A cut for credibility
At its monetary policy meeting on the 6 June, the European Central Bank (ECB) cut its key interest rates by 25 basis points (bps). The rate cut was broadly signalled by the central bank and widely expected by investors.
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At its monetary policy meeting on the 6 June, the European Central Bank (ECB) cut its key interest rates by 25 basis points (bps). The rate cut was broadly signalled by the central bank and widely expected by investors.
Singapore and HK interest rates have moved sharply higher over the past few years, abetted by a high correlation with US monetary policy. However, they have echoed rather than mirrored the upward trend in US interest rates.
Falling inflation across APAC has raised expectations of rapid central bank rate cuts to boost flagging domestic growth – however APAC central banks appear reluctant to diverge from the Fed.
With US inflation finally trending downwards, the Federal Reserve (Fed) has pivoted to a more dovish bias, although the timing and extent of future rate cuts remains uncertain. Across the Asia-Pacific (APAC) region, inflation is also declining, raising the prospect of lower regional interest rates. However, the impact will likely be more variable due to country-specific nuances.
With Q1 '24 underway, Kyongsoo Noh answers the top five questions on the minds of liquidity investors.
At its first monetary policy meeting of 2024, the RBA left its OCR unchanged at 4.35%. The decision was in-line with market expectations, although the tone of the accompanying statement was more hawkish than expected.
The BoE held the Bank Rate steady at 5.25% for the fourth consecutive meeting but removed their bias towards the next move being another hike in rates. Notably, the decision was not unanimous as two members continued to vote for a 25 basis point (bp) hike, while one member voted for a 25bp cut leaving six members, including the Governor voting for unchanged rates.
On 29th January, the Monetary Authority of Singapore (MAS) decided to maintain the prevailing rate of appreciation of the S$NEER policy band, with no change to its width nor centre point.
At its first monetary policy meeting of the year on 25 January 2024, the European Central Bank (ECB) kept all key interest rates on hold. This was the third consecutive meeting to conclude with no change to monetary policy, with the last rate hike occurring in September 2023.
BOE voted to maintain Bank rate at 5.25% (6:3 split for hike) again. The Panel maintained its guidance that rates would need to be “sufficiently restrictive for sufficiently long” to curb inflation.
At its monetary policy meeting on 14th December 2023, the European Central Bank (ECB) kept all key interest rates on hold, for a second consecutive meeting. The ECB announced that reinvestments of the Pandemic Emergency Purchase Program (PEPP), will decrease by 50% from July 2024. President Lagarde stated that the Governing Council (GC), will not let its guard down, in the fight against inflation.
The Federal Open Market Committee (FOMC) left the federal funds target range unchanged at 5.25-5.50%, as anticipated. However, the quarterly update for the Summary of Economic Projections (SEP) suggested a dovish bias, with the “dots” pointing towards three cuts for next year, with a rate at the end of 2024 of 4.50-4.75%. The market reacted by increasing expectations for rate cuts in 2024, pricing in cuts more aggressively than the Fed.
When comparing short-term money market strategies with step out strategies such as standard money market or ultra-short duration bond strategies, it’s important to consider the future total return potential rather than just today’s yield.
At their last monetary policy meeting of the year on 5 December, the Reserve Bank of Australia (RBA) left the Overnight Cash Rate (OCR) unchanged at 4.35%. This was in line with market expectations.
Market attention has veered towards other policy options that are at the disposal of the ECB’s Governing Council (GC). One such option, the remuneration of Minimum Reserve Requirements (MRR), has recently come under particular focus. While not widely understood, adjustments to this rate could have significant implications for short term interest rates and liquidity demand.
At its monetary policy meeting on the 7 November, the Reserve Bank of Australia (RBA) decided to raise the Overnight Cash Rate (OCR) by 25bps to a 12-year high of 4.35%. The rate hike, which follows a five-month hiatus was widely anticipated by economists following stronger than expected economic data.
At its November Monetary Policy Committee meeting, the BoE voted to maintain the Bank Rate at 5.25%. The BoE’s Governor Andrew Bailey noted that inflation has fallen, and is expected to fall further this year and next year, while monetary policy is viewed as restrictive.
At its monetary policy meeting on 26 October 2023, the European Central Bank (ECB) kept all key interest rates on hold, the first pause after 10 consecutive rate rises.
At its semi-annual monetary policy meeting on 13 October, the MAS decided to maintain its prevailing monetary policy stance Fig 1a for a second meeting - following five previous upward adjustments. The decision was In-line with expectations, with the central bank leaving the slope, band width, and mid-point of SGD NEER unchanged.
At Michele Bullock’s first monetary policy meeting as the Governor, the Reserve Bank of Australia (RBA) decided to leave the Overnight Cash Rate unchanged at 4.10%. This was the fourth pause in the central bank’s rate hiking cycle.
The FOMC unanimously decided to make no changes to the 5.25%-5.50% federal funds target range. Interest on reserve balances (IORB) and the overnight reverse repurchase agreement (RRP) rate were also left unchanged at 5.40% and 5.30%, respectively
The rise in interest rates over the last two years has been dramatic. UK interest rates have risen at the sharpest pace since the 1980s, while rates in Europe have rapidly increased from negative territory to the highest level since the inception of the euro. Evidently, this sharp rise in rates is good news for corporate treasurers.
At its September 2023 meeting, the Monetary Policy Committee (MPC) maintained Bank Rate at 5.25% in a split 5-4 decision, while unanimously deciding to reduce the stock of UK government bond purchases by £100 billion over the next twelve months.
At its monetary policy meeting on 14 September 2023, the European Central Bank (ECB) tightened monetary policy further, increasing key interest rates by 25 basis points (bps).
For the past three decades, the property sector has been a key driver of Chinese economic growth. While the recent property downturn in China has created challenges for the banks’ operating environment, the banks’ credit profiles likely remain resilient in the future.
On 14 September 2023, the People’s Bank of China (PBoC) announced a broad based 25bps Reserve Requirement Ratio (RRR) rate cut. The timing and the shortness of the notice period was unexpected.
At Governor Lowe’s last monetary policy meeting as head of the RBA, the bank decided to leave the Overnight Cash Rate unchanged at 4.10%. This was widely expected by economists following slightly softer economic data and a recent decline in monthly inflation.
On 15 August 2023, the People’s Bank of China cut its 1-year Medium Term Lending Facility by 0.15% to 2.50% and its 7-day open market operation repo rate by 10bps to 1.80%.
On August 1, 2023 Fitch downgraded the United States of America’s long-term credit rating one notch, from AAA to AA+.
The Bank of England (BoE) opted to raise Bank Rate by 25 basis points (bps) to 5.25%, as a recent cooling in both inflation and the economic outlook allowed it to moderate the magnitude of its hike from the 50bps delivered in June.
At its monetary policy meeting on 1 August 2023, the Reserve Bank of Australia decided to leave the Overnight Cash Rate unchanged for a second month. This follows a cumulative 400bps of rate hikes over the previous fifteen months, which has taken base rates to a decade high of 4.10%.
At its monetary policy meeting on 27 July 2023, the European Central Bank (ECB) tightened monetary policy further, increasing key interest rates by 25 basis points (bps).
The Federal Open Market Committee (FOMC) unanimously voted to raise interest rates 25bps. The new target range is 5.25%-5.50%—the highest level in more than 22 years—yet we may not have reached the peak.
On 20 July 2023, the European Commission published its report to the Council and the European Parliament on the adequacy of the European Union Money Market Fund Regulation.
On 12 July 2023, the US Securities and Exchange Commission (SEC) announced amendments to its rules governing money market funds (MMFs). The new rules will lead to changes for US domiciled MMFs, as well as specific changes impacting institutional (prime and tax exempt) MMFs, and government, Treasury and retail MMFs.
At its monetary policy meeting on the 4th of July, the Reserve Bank of Australia left the overnight cash rate unchanged at 4.10%. This represents the second pause in the central bank’s current hiking cycle.
In a widely anticipated move, the Peoples Bank of China cut its 1-year Medium-Term Lending Facility by 10bps to 2.65% on the 15th of June. The action follows a 7-day Repo cut and a Standing Lending Facility rate cut last week and highlights the central bank’s decisively dovish pivot as the authorities seek to stabilize China’s faltering economic recovery.
At its 13th June Open Market Operation, the People’s Bank of China (PBoC) cut its 7-day Reverse Repo Rate by 10bps to 1.90%. The repo rate is a key tool used by the central bank to ensure adequate market liquidity, this also represents the first repo rate cut since August 2022.
At its monetary policy meeting on May 3, the Reserve Bank of Australia (RBA) surprised the market by hiking its Overnight Cash Rate by 25bps to 3.85%. Justifying its abrupt volte-face, the central bank said “inflation… is still too high and it will be some time yet before it is back in the target range”.
Following its semi-annual monetary policy meeting on April 14, the Monetary Authority of Singapore (MAS) left its prevailing monetary policy unchanged – including the slope, width and center-point of the band – unchanged. This represents the central bank’s first pause since it began tightening its policy in October 2021.
On 4 April, the Reserve bank of Australia (RBA) decided to leave the Overnight Cash Rate unchanged at 3.60%. This represents the first pause by a major central bank and follows a cumulative 350bps of hikes over the past ten consecutive meetings.
On Friday 17th March, the People’s Bank of China (PBOC) announced a broad-based 25bps Reserve Requirement Ratio (RRR) rate cut, releasing additional liquidity into the banking system and reducing commercial bank funding costs.
The European Central Bank (ECB) acted on February’s forward guidance by increasing key interest rates by 50 basis points (bps), despite current market volatility.
At its monetary policy meeting on the 7th of March, the Reserve Bank of Australia (RBA) hiked its Overnight Cash Rate by 25bps to an eleven-year high of 3.60%. The rate hike was widely anticipated following last month’s hawkish pivot.
The HKMA intervened to defend the peg and purchased HKD 19bn on February 14-15. This has reduced its aggregate balance to HKD 77bn, the lowest level in almost three years.
At its first monetary policy meeting of 2023, the Reserve Bank of Australia (RBA) raised its Overnight Cash Rate by 25bps to 3.35%. The move represents the ninth consecutive hike in the current cycle, and the accompanying statement was more hawkish than expected.
The European Central Bank raised its key interest rates by 50 basis points, in line with expectations to a 15-year high of 3.00%. In the accompanying statement and subsequent press conference, the ECB maintained its hawkish tone, signalled an intention to increase rates by a further 50 bps in March.
The Bank of England raised the Bank Rate by 50 basis points to 4.00% in a split 7-2 vote as a tight labour market and continued domestic wage and price pressures justified a tenth consecutive increase.
At their final monetary policy meeting of 2022, the Reserve Bank of Australia raised its Overnight Cash Rate by 25bps to a decade high of 3.10%.
On Friday 25 November, the People’s Bank of China announced a 25bps Reserve Requirement Ratio cut. In the accompanying statement, the PBoC confirmed the RRR cut was part of a package of measures to support economic growth.
After a series of jumbo rate hikes, it appears most investors are anticipating a pivot from the US Federal Reserve. However, the elevated level of inflation and resilience of the economy mean that rate cuts are unlikely for some time.
At its 3 November monetary policy meeting, the BoE finally joined the 75bps rate hike club, increasing the base rate to 3.00%, the highest level in almost 14 years. Over the past 11 months, the central bank has pushed the base rate up by 290bps – the fastest pace on record – driven by a combination of elevated inflation, a tight employment market and the potential for this to lead to more persistent inflation, and the recent fiscal support for household energy bills.
At its monetary policy meeting on 1 November, the RBA raised the Overnight Cash Rate by 25bps to 2.85%. This was the seventh hike in the current cycle, taking base rates to a nine-year high.
At its semi-annual monetary policy meeting on 14 October, the MAS re-centered the mid-point of the S$NEER up to its prevailing level – approximately a 2% increase – while keeping the slope and width of the policy band unchanged.
At its monetary policy meeting on 4 of October, the Reserve Bank of Australia raised its Overnight Cash Rate by 25 basis points to 2.60%
The Bank of England raised the Bank Rate by 50 basis points to 2.25% in a split 5-3-1 vote as the tight labour market, higher wages and higher domestic inflation justified a seventh consecutive hike.
The front-loading of rate hikes and belief that inflation is expected to peak later this year and then decline back towards the 2–3% range does suggest that the RBA may have reached peak hawkishness.
The recent, aggressive Fed interest rate tightening policy, combined with Hong Kong’s weak economic outlook, moribund Chinese growth and subdued local market sentiment, has pushed the HKD towards the weak side of its convertibility. The HIBOR-LIBOR spread has also widened the most since 2019.
On August 15, the People’s Bank of China announced a MLF rate cut of 10bps to 2.75%. Although small in size, the rate cut confirms the PBOC’s desire to jump-start the economy and sends an important monetary policy signal with significant implications for interest rates and RMB cash investors.
In a near-consensus 8-1 vote, the Bank of England (BoE) Monetary Policy Committee (MPC) raised the Bank Rate by 50 basis points (bps) to 1.75%, the highest level in over 13 years as domestic cost and price pressures intensify.
On July 27, the Federal Open Market Committee (FOMC) raised its Federal Funds Rate target range by 75 basis points (bps) to 2.25% - 2.50%. There were no dissenters.
On July 14, the MAS announced it would tighten monetary policy by re-centering the S$NEER policy band upwards. While the timing of the MAS statement was a surprise, the market was expecting further policy actions.
At its monetary policy meeting on July 5, the RBA hiked its overnight cash rate by 50bps to 1.35%. This was also the third rate hike in the current cycle, and the first time ever the central bank has executed back-to-back 50bps hikes, reinforcing its inflation fighting credentials.
On June 7, the RBA surprised the market by raising the Overnight Cash Rate by 50bps to 0.85%. This is the second rate hike in the current cycle, following a 25bps move in early May. The size of the rate hike also affirms the RBA’s desire to get ahead of the inflation fighting curve.
The RBA hiked its Overnight Cash Rate for the first time in over a decade at its 3rd May monetary policy meeting. The hike was more hawkish than expected.
At its semi-annual policy meeting on 14 April, the MAS announced its decision to further tighten monetary policy. The announcement and upward revision to the MAS's growth and inflation outlook will have important implications for Singapore interest rates and cash investment opportunities.
At its monetary policy meeting on Tuesday 5th of April, the RBA left base rates unchanged at a record low of 0.1% whilst acknowledged that “inflation has picked up and a further increase is expected” in the accompanying comments. Its hawkish tilt and giving a clear hint to potential rate rises in the coming months.
On 15-16 March, the Federal Open Market Committee (FOMC) held its two-day meeting and raised its federal funds rate target range by 25 basis points (bps) to 0.25%-0.5%, with one dissenting member calling for a 50bps increase.
At their first monetary policy meeting of 2022, the RBA acknowledged that the economy “remains resilient” despite the recent Omicron outbreak which has not derailed the recovery.
Singapore’s de-facto central bank hiked the slope of the S$NEER policy band, increasing the pace of appreciation. The unexpected hike was triggered by the strong inflation uptrend in recent days as well as a reassessment of Singapore’s growth and inflation expectations in 2022 by the MAS.
On December 7, the PBoC announced an unexpected 50bps Reserve Requirement Ratio (RRR) cut. The broad based cut will release significant liquidity into the financial system, while the resultant confirmation that policymakers are focused on stabilizing growth has boosted investor sentiment. CNY cash investors should pay attention to the PBoC’s rapid pivot from neutral to dovish monetary policy and the implications.
Rising inflation concerns are amplifying developed market rate hike expectations; in contrast APAC central banks have benefitted from more muted CPI. The rationale for this difference has important implications for investors.
The Bank of England (BoE) defied market expectations for a rate hike as they left the Bank Rate unchanged at 0.1% and maintained total target of asset purchases at GBP 895 billion. The deferred hike means no immediate respite to ultra-low sterling yields, although further interest rate volatility is likely; investors should consider maintaining a disciplined approach to cash investment and segmentation.
During October, the yield on the RBA’s yield curve control (YCC) target reference bond spiraled upwards and closed at 0.775%, well beyond the central bank’s 0.10% target. This was an unexpected reversal for a bond which was historically very stable with minimal central bank interventions, since the RBA first introduced the YCC program in March 2020.
At its semi-annual monetary policy meeting, the Monetary Authority of Singapore surprised the market by raising slightly the slope of the S$NEER policy band, from zero percent previously.
The RBA announced its first tentative step towards tapering and eventual policy normalization.
In June 2021, the People’s Bank of China (PBoC) announced changes to commercial banks’ mechanism for setting the time deposit ceiling from a multiplier method to a basis points method.
On 9 July 2021, the PBoC announced a 50bps RRR cut that will reduce bank funding costs and unleash a substantial quantity of liquidity support. The size of the rate cut surprised the market and confirmed the authority’s dovish pivot.
China’s bond market has seen an unusual wave of defaults over the past month – triggering a jump in credit spreads and raising investor concerns. Find out the implications to cash investments and why independent credit research remains important.
The RBA cut base rates and announced the introduction a traditional quantitative easing program “to support job creation and the recovery of the Australian economy from the pandemic”. This was by far the most wide-ranging monetary policy actions by the RBA – with significant implications for the AUD interest rates and investors.
Escalating political and trade tensions, strong international demand for HKD and increasing connection with China, have weakened the Linked Exchange Rate System (LERS) – with significant implications for HKD cash investors.
Investing in professional sports leagues and related businesses. As rules around private equity ownership of sports leagues expand, we review team valuations and profitability, emerging sports categories, streaming and broadcast revenues, the decline of regional sports networks, drivers and comparisons of league parity, relegation and financial pressures in the English Premier League, stadium subsidies, sports betting and other adjacent businesses, antitrust issues, the esports winter, the worst teams that money can buy and the best basketball players of all time.
With spring planting season having arrived in Zone 7, it’s a good time to review agriculture from an investor’s perspective. Topics include agricultural price inflation in the wake of Russia’s invasion of Ukraine; public and private equity investments in agriculture, farmland ownership and the drivers of farmland returns; seed bio-engineering designed to reduce consumption of fertilizer, fungicide and water; and some satellite data on the immense agricultural damage occurring in Gaza and Israel. The Appendix addresses the avian flu’s impact on agriculture and the food supply.
Cicadian Rhythms: the fading prospects of a US disinflationary boom; Japan’s structural reform/M&A emergence; and Eye on the Market mailbag responses to questions on Tesla/Musk, GLPs, housing, China, Truth Social and Meta’s latest open source model
The Good, the Bad and the Ugly: on tech valuations, AI, energy and US politics Last week I spoke to the firm’s tech CEO clients at a conference in Montana. This note is a partial summary of that presentation, entitled “The Good, the Bad and the Ugly: an investor lens on tech valuations, AI, energy and the US Presidential Election”.
Electravision. The predominant vision for the future involves the electrification of everything, powered by solar, wind, transmission and distributed energy storage. This vision primarily relies upon the greater efficiency of electric motors and heat pumps vs their fossil fuel counterparts. While the grid is getting greener, electrification is advancing at a much slower pace for reasons related to chemistry, physics, cost, politics and human behavior. Our 14th annual energy paper takes a closer look, and also includes sections on nuclear power, China, hydrogen, “net zero oil” and Gaza’s energy future.
Five Easy Pieces: on Magnificent 7 stocks, open source large language models, the No Labels movement, the Armageddonists and bottom-fishing in Chinese equities.
This Eye on the Market is about all the things that can be true at the same time. The collapse of the political middle in Congress should not be an excuse for everyone else to abandon the ability to believe things that may appear contradictory, but which are all part of a more complicated reality.
Falling US inflation and possible Fed easing are increasing talk of a soft landing rather than a hard landing and bear market. Our 2024 Outlook takes a closer look at equities, fixed income, China, Japan, antitrust, weight loss drugs and ten surprises for 2024.
A review on industry returns in private equity, venture capital, hedge funds, commercial real estate, infrastructure and private credit
Six questions and answers on the intersection between geopolitics, US politics and financial markets
A comparison of NYC to 21 other US cities with respect to urban recovery, commercial real estate, mass transit, crime, outmigration, work-from-home trends, tax rates, economic pulse, fiscal health, unfunded pensions, energy prices, industry diversification and competitiveness.
I asked Chat GPT-4 questions on economics, markets, energy and politics that my analysts and I worked on over the last two years. This piece reviews the results, along with the latest achievements and stumbles of generative AI models in the real world, and comments on the changing relationship between innovation, productivity and employment. The bottom line: a large language model can process reams of text very efficiently, and that’s what it’s made for. But it cannot think or reason; it’s just something I paid for. Upfront, a few comments on oil prices.
Global Resilience to higher rates
The impact of underperforming 2020 and 2021 US IPOs
Comments on mega-cap stocks and artificial intelligence. Then, it’s time for some of my unsolicited letters to Barron’s, MSNBC, “No Labels”, FHFA and more.
Time to retire the US/Emerging Markets barbell for a while
Oh, The Places We Could Go: on the US dollar, reserve currencies and the South China Morning Post
Frankenstein’s Monster: banking system deposits and the unintended fallout from the Fed’s monetary experiment; commercial real estate, regional banks and the COVID occupancy shock; the wipeout of Credit Suisse contingent convertible securities; a market and economic update; and an update on San Francisco, which has experienced the weakest post-COVID recovery of any major city in North America.
Renewables are growing but don’t always behave the way you want them to.
One of these things is not like the other, and that thing is Silicon Valley Bank.
US economy stays warm, large language model battles get hot
The Federal debt and how the Visigoths may try to break the system if no one fixes it.
The End of the Affair. The affair with market catalysts of the last decade is over now, and a new era of investing begins. A look at a world of higher inflation, more regionalized trade and investment and more capital scarcity.
A discussion of the YUCs, the MUCs, FTX and three rules for investors: the Gensler Rule, the Sirens Rule and the Summers Rule. Our 2023 Outlook will be released as usual on January 1st.
A preliminary read on midterm election results given the context of prevailing market and economic conditions.
My list of things I am thankful for this year: CH4, HR4346 and mRNA-1273. Of course, your mileage may vary.
Three reruns for investors. First, in almost every post-war bear market, equity declines preceded the fall in earnings, growth and employment. As a result, we’re more focused on changes in manufacturing surveys than on the other victims of a recession as a sign of the bottom. Second, Graham Allison’s rising power conflict analysis and its historical precedents come back into focus with the latest US policies cutting off high performance semiconductor exports to China. Third, another press article on a small country as a prototype for a renewable future that does not address its irrelevance for larger developed or developing economies.
Three topics this week: the repricing of risky credit, labor markets and a COVID recap. While equities are pricing in a much greater probability of recession now, the credit markets are just getting started. One canary in the coal mine: the Citrix financing, which will be followed by a string of even weaker credits. On labor markets, the Fed is facing the tightest labor supply conditions in decades. Can second chance policies easing the path to employment for people with criminal arrest records help increase the labor supply, or will the Fed have to crush the economy to restore desired levels of wage and price inflation? Lastly, an update on bivalent vaccines and inhalable vaccines, as the latter offers the best chance of actually reducing infection and transmission.
Three topics in this month’s Eye on the Market. First, an update on the Fed, inflation and corporate profits since we believe the June equity market lows may be retested in the fall. Second, a detailed look at what would have to happen for the climate bill’s projected GHG savings to actually occur; the answer matters given the implications for the US natural gas industry. And finally, will all the new IRS agents really stick to auditing taxpayers above $400k? Data from the GAO suggests there may not be enough of them to meet the Administration’s revenue targets.
The global supply chain mess will require increased vaccination and acquired immunity, semiconductor capacity expansion and the end of extraordinary housing/labor supports to resolve. A close look at some very anomalous charts on shipping, semiconductors, inventories, labor shortages, foreclosures and mortality.
Greetings students. We look forward to seeing you back on campus. Your Fall 2021 syllabus is attached. Syllabus update: Biology BI66 “The Origins of COVID” has been cancelled until further notice.
Red Med Redemption: A visual depiction of politics, ideology, vaccine resistance and the Delta variant. Other topics: US economic recovery update, and big tech reliance on acquisitions to fuel growth at a time of rising anti-trust enforcement. We conclude with a new “Investor Odds & Ends” section that covers NYC hotel/office markets and possible changes in personal, corporate and international tax rates.
COVID and the Delta variant; the Fed as firefighter and arsonist; US-China economic divorce picks up steam; and the pig-snake inflation timetable (how long until we know if there’s a permanent wage/price rise).
Every two years, we take a close look at the performance of the private equity industry given its rising share of institutional and individual portfolios. Our findings this year: the private equity industry is still outperforming public equity, but this outperformance narrowed as all markets benefit from non-stop monetary and fiscal stimulus, and as private equity acquisition multiples rise. We examine manager dispersion, benchmarks, co-investing, GP-led secondary funds, the torrid pace of industry fundraising and manager fees in this year’s piece.
The election as referendum on America: how well does the “system” work, and for whom?
The cost of engineering a US recovery as the world waits for a vaccine; Biden agenda on taxes/spending; Tech stocks (2020 vs 1999); COVID and The Fountainhead; US election rules, dates and process in light of derogatory comments on mail-in voting by the President and Attorney General
Prospects for further US employment and profits growth are improving, but the US is now running the 3rd highest infection rate in the world. In infection hotspot states, governors are relying on falling mortality as the reason to make only minor policy adjustments. This week, we look at why mortality is diverging from infections and hospitalizations, and more broadly, at whether a US scientific trust gap has played a role in the recent infection surge.
Read our latest On the Minds of Investors article to understand what the outcome of the French National Assembly elections could mean for investors.
Markets have a tendency to over appreciate the near term and under appreciate the long term. We think AI will lead to all sorts of business transformation and productivity gains in the long term, but recent performance has been driven by significant upgrades in near-term AI demand projections.
This paper discusses trade tensions and the recent tariff impositions on China, and the investment implications.
The average homeowners’ insurance policy cost roughly $1,900 in 2023, up over 20% from the previous year and nearly 50% from before the pandemic.
This paper, written by Kerry Craig, highlights the growing significance and potential risks of private credit markets in enhancing returns and diversification.
In the May CPI report, year-over-year headline inflation cooled to 3.3% from 3.4% - down one decimal, yet the median FOMC rate forecast for 2024 moved higher by half a percent.
MORENA party’s candidate, Claudia Sheinbaum, won the Mexican presidential election with a historic margin, receiving 60% of votes. This victory was anticipated, but the scale of left-leaning MORENA's win in Congress was unexpected.
This paper summarizes the key highlights from the latest Federal Open Market Committee meeting. (3-min read)
This paper, written by Marcella Chow, highlights the divergence in central bank monetary policies and its investment implications.
In our 2024 Mid-Year Outlook, we address 10 frequently asked questions by investors in the region and beyond. We hope our insights can help you navigate the road ahead, on the way to your investment objectives.
For three years, stock and bond returns have been moving in the same direction. When times are good, this is not thought of as a problem; however, when stocks sell off and bonds are not there to catch them, then investors are faced with an important portfolio construction challenge to solve.
This paper discusses the election results in India, and the investment implications of short-term valuation challenges and long-term positive prospects.
We explore what the UK election means for the economy and markets.
The U.S. is the largest equity market in the world, but its weighting in the MSCI AC World Index exceeds its global equity market weighting and its projected contribution to global GDP in 2023.
This paper, written by Raisah Rasid and Jennifer Qiu, discusses why investors should take an active approach towards Asian equities in mitigating currency risks.
While we don’t expect home prices to decline materially from here given structural dynamics, Americans that have been sidelined from being able to purchase a home over the past couple of years are perhaps hoping and waiting for at least one area of reprieve: lower mortgage rates.
If 2023 was the year for AI excitement, this year may be the year for deployment. In first quarter earnings calls, approximately 45% of S&P 500 companies mentioned AI, marking a fresh high by our measures, and their collective investments continue to climb.
This paper, written by Dr. David Kelly and Jennifer Qiu, discusses investment implications of rising U.S. federal debt and widening deficits.
Japanese equities are in the spotlight, but investors should be mindful of the risks as well as the opportunities
Within that “super core” index, one small category (only 3% of the overall CPI basket) has been making outsized contributions: auto insurance.
2023 marked a third consecutive year of double-digit declines for Chinese equity markets. Investors are now reconsidering how to invest in that market and whether investing in Asia is about more than just China.
This paper discusses why U.S. 1Q24 earnings have been better than expected, and broadening profit growth should present opportunities outside of the Magnificent 7.
To understand these shifting dynamics and determine how to embrace this growing asset class, investors should consider: What’s driving the growth of private credit and the decline in high yield and, if private credit deserves a strategic allocation in a broader credit portfolio?
Following the pandemic, median home prices surged by double digits until peaking at the end of 2022. While prices are down roughly 12% since then, home affordability still sits at multi-decade lows.
This paper discusses the broader outlook for inflation and the labor market, following the April jobs report in the U.S.
During the first quarter, U.S. equities shrugged off ever-changing expectations for monetary policy with relative ease, climbing 10.6% despite a sharp hawkish repricing in policy expectations.
This paper summarizes the key highlights from the latest Federal Open Market Committee meeting. (3-min read)
At its May meeting, the Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50%.
This paper, written by Marcella Chow, discusses the recent surges in gold and copper, and why commodity strategies can help protect portfolios when both stocks and bonds are correcting.
Investors should consider trimming decade-long international equity underweights – and Asia is the key place to look for opportunities.
Private equity has been surprisingly resilient throughout the Fed hiking cycle. In 2022, PE only declined by 2%, but is now 3.2% higher than the end of 2021, compared to U.S. small cap stocks, which were 7% lower.
This paper discusses the expected delay in the Federal Reserve's rate cut cycle, and when the current wave of volatility could eventually subside.
It’s well understood that consumption is the largest contributor to economic growth in the United States accounting for just under 70% of GDP. Therefore, to a large extent, any outlook on the economy hinges on the health of the consumer.
We explore the potential economic and market scenarios stemming from escalating tensions in the Middle East.
This paper addresses the latest Chinese economic data and the factors that may contribute to China markets trending higher.
Investors should recognize that while geopolitical headlines have the ability to capture market attention, the shocks to sentiment are often short-lived.
This paper discusses the relative valuation of European equities, and the factors that could suggest a more constructive outlook for the region's equity market.
Well-positioned investors could take advantage of the new era unfolding in healthcare transformation.
We expect yields to stabilize in the near term and for spreads to remain tight given still healthy credit fundamentals and strong economic activity.
This paper, written by Kerry Craig, addresses the current performance and outlook of private equity market with subdued exit activity.
2023’s so-called “everything rally” was confusing to many market watchers, given the pessimistic macro outlook at the beginning of last year. Now, a quarter into 2024, the rally has clearly continued.
The S&P 500 notched 24 new all-time highs in Q1, up 10.6%, with 2.7%-points from earnings, 7.4% from multiple expansion, and 0.4% from dividends.
While we don’t expect a recession this year, whenever one occurs, the lack of private sector imbalances suggest that it is unlikely to be a severe one.
Investors should focus on EM regions and sectors that benefit from structural, as well cyclical, tailwinds.
This paper, written by Tai Hui, addresses why policy easing amid a soft landing backdrop should be positive for both equities and fixed income.
Insights on the 2024 U.S. general election, potential election outcomes, policy agendas and investment implications to help investors navigate the election cycle in portfolios.
This paper summarizes the key highlights from the latest Federal Open Market Committee meeting. (3-min read)
This paper addresses why strong and consistent earnings growth, structural reforms and the likelihood of political continuity further enhances India's appeal in spite of rich valuations.
As widely anticipated, the Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50% at its March meeting.
Cryptocurrency investments should be made cautiously, and only as part of a much larger diversified portfolio of stocks and bonds. For investors with a long time horizon, traditional asset allocation remains an effective strategy.
This paper, written by Tai Hui and Adrian Tong, discusses the key highlights of the Bank of Japan's March monetary policy meeting and what it means for the economy.
For investors looking to diversify concentration to U.S. tech names or to lean into underappreciated AI opportunities, Asian high-quality technology stocks could provide an attractive opportunity set.
Despite causing some short-term profit taking, gradual Yen strength can be digested by equities. Japan finally deserves to retake its place as a strategic allocation in global equity portfolios.
This paper discusses the macro factors in emerging markets that can drive a potential market rally once the Fed starts to cut and the U.S. dollar turns.
The financial future for women looks promising, but for individual investors, a strong financial plan will be key in seizing the opportunity.
This paper summarizes the key objectives set out in the government work report at China’s National People’s Congress, which were broadly in line with expectations.
After a significant pricing reset, private real estate could be on the verge of a rebound due to a few key drivers.
With monetary policy still at the forefront of the macro landscape in 2024, investors are left wondering how the election might influence Fed policymakers.
Continued demand for AI technologies from mega-cap companies should benefit Asian exporters that are involved in the regional tech supply chains.
Investors should recognize that the challenging backdrop presents an opportunity for alpha generation, both through traditional security selection and through active tax management
This paper, written by Tai Hui discusses why Japanese equities could remain strong despite the potential tightening in monetary policy.
For over a year, investors have been hyper-focused on the performance of just seven U.S. companies, nicknamed the “Magnificent 7”*, and rightfully so, given their outsized returns, earnings growth, and long-term tailwinds.
Over the last 30 years, cash has been unable to keep up with the creep of inflation. By contrast, other investments have been much better places to park capital.
This paper, written by Meera Pandit and Jennifer Qiu, discusses how quality balance sheets and margins continue to support U.S. large caps in spite of favorable small cap valuations.
Europe has made structural improvements and we think investors should sit up and take notice.
Presidential candidates will be campaigning on various policy proposals throughout the year, but one policy item that must be addressed during the next administration is whether to sunset or extend tax cuts from the 2017 Tax Cuts and Jobs Act.
The S&P 500 has reached a new milestone: crossing 5000. It is up 5.4% year-to-date, compared to the equal weight S&P 500, up just 0.7%.
While recession risks in the US have receded, geopolitical risk, election risk and restrictive monetary policy all threaten the current rally.
As the Year of the Dragon is about to begin in China, investors wonder: Are Chinese equity valuations cheap enough to bring good fortune ahead? What will turn investor sentiment around? Equity valuations already reflect a lot of uncertainty about the short-term and long-term path, suggesting a tactical rebound may be in the cards.
This paper, written by Meera Pandit, Nimish Vyas and Stephanie Aliaga, discusses the 4Q23 U.S. earnings and what it means for the Magnificent 7 and the broader markets.
We look at why we think investors should look to diversify their exposure to the magnificent seven US stocks.
At the first Federal Open Market Committee (FOMC) meeting of the year, the FOMC voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50%.
Markets achieved a trifecta of good news in 2023: an economy that not only avoided recession but reaccelerated, meaningful progress on disinflation, and the Fed pivot markets had been trying to manifest for over a year.
This paper, written by Tilmann Galler and Chaoping Zhu, discusses the recent Chinese economic data releases and the investment implications.
Geopolitical uncertainty and an impending U.S. presidential election, coupled with the divergence in performance across assets in January, help to underline the importance of diversification in a fundamentally uncertain world.
This paper, written by Tai Hui and Jennifer Qiu, addresses the history of monetary easing and our expectations of Fed policy in 2024. (6-minute read)
Much has been said about the “Magnificent 7” stocks that dominated market returns last year, ending 2023 up 107% and accounting for around two-thirds of the S&P 500’s performance.
After an impressive equity rally in 2023 and new all-time highs to start 2024, investors are evaluating their equity allocations, which includes where to position along the market cap spectrum.
This paper, written by Raisah Rasid, discusses the expected weakening of the U.S. dollar and the inflation deceleration in Asia, which presents an opportunity in Asia fixed income
International equities are likely to benefit this year from positive structural changes, a weaker dollar, and exciting governance changes.
Presidential elections always add an extra element of uncertainty to investing, and after a halcyon 2023 in equity markets, could come as a shock to investors. On top of assessing the path of the Federal Reserve, the stability of profits and the consumer, and navigating economic resilience vs. recession, investors will have to grapple with the barrage of headlines about the 2024 election.
This paper, written by Chaoping Zhu, discusses the recent Chinese economic data releases and the investment implications.
A spike in oil prices could lead to higher prices at the pump, further disrupting the broad disinflationary trend.
The December CPI report showed an unexpected bounce in inflation with headline CPI rising 0.3% m/m (consensus 0.2%) and the year-over-year rate rising to 3.4% (consensus 3.2%).
Although investors may be tempted to invest based on who they think will win the election and how certain policies may be implemented, macro forces often dwarf policy agendas when it comes to sector performance.
This paper, written by Marcella Chow and Adrian Tong, discusses the outlook for Asia high dividend equities in 2024.
For investors, should fundamentals remain solid we would expect the Fed to begin gradually reducing rates by the middle of this year and for long-term rates to stabilize at current levels, before grinding lower over the balance of the year.
Many investors wonder if they can tweak their existing exposures to be either more defensive against volatility or more opportunistic if certain sectors face future policy tailwinds.
We cannot predict what theme will dominate the markets in 2024, but we can control how we react to positive and negative surprises by having a measured approach to portfolios.
Deficits are financed through Treasury issuance, and it is likely this significant increase in Treasury bond supply relative to estimates contributed to the move higher in bond yields this year.
This paper, written by Tai Hui, summarizes the factors that could trigger rate cuts and policy outlook with its investment implications. (3-minute read)
At its final meeting of 2023, the Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50% and strongly hinted it is finished hiking interest rates this cycle.
This paper summarizes the key highlights from the latest Federal Open Market Committee meeting. (3-min read)
This paper, written by Chaoping Zhu, Marcella Chow and Tilmann Galler, discusses the outlook of China and policy implications.
This paper, written by Tilmann Galler and Natasha May, discusses the outlook of small cap stocks and the investment implications.
Understand the drivers of small cap valuations and find out why small cap stocks could still offer attractive opportunities for long-term investors.
Japan has long been a disappointing market for global investors, with annualized 15-year returns of 6.4% (in U.S. dollars) versus 13.7% in the U.S. Slow growth, negative interest rates, lack of focus on shareholders, and better opportunities elsewhere in Asia kept investment dollars away from Japan.
This paper, written by Chaoping Zhu and Marcella Chow, discusses the outlook of China and policy implications.
For investors, large caps may be better insulated from higher rates than small caps, and falling net interest costs can assist decelerating input costs and wages in supporting stabilizing margins.
The big story for U.S. equity markets this year has been the remarkable performance of the largest seven technology stocks or the “magnificent 7.” These handful of stocks account for nearly 100% of S&P 500 YTD returns and are up over 72% this year.
This paper, written by Raisah Rasid and Adrian Tong, discusses the outlook of Asia tech and the investment implications.
Many investors are comfortable with the concept of fundamental analysis but are less confident in the technical aspects of market forecasting. As a result, they may wonder: does technical analysis matter?
Active stock selection remains of the utmost importance, as investors should look toward attractively priced companies with strong balance sheets and resilient profits.
For markets, disinflation could pose an earnings headwind for certain industries like autos, hotels and airlines while the Fed’s “higher for longer” mantra could instill continued volatility in bond markets.
This paper, written by Tai Hui and Meera Pandit, summarizes the potential underlying market and policy implications of 2024 U.S. elections. (3-minute read)
While many of the traditional sources of diversification have been challenged by market conditions, alternative investments can enhance diversification.
Coming into 2023, the rallying cry from the asset management community was “Bonds are Back! ”. There were several reasonable assumptions behind this call.
This paper, written by Adrian Tong and Jennifer Qiu, summarizes the recent key central banks' decisions and their implication on asset allocation. (3-minute read)
While a reacceleration in growth and/or inflation could prompt another rate hike either in December or early next year, short-term bumps in a downward trending economy likely keep the Fed on hold well into 2024.
This paper summarizes the key highlights from the latest Federal Open Market Committee meeting. (3-min read)
Historically, Chinese market recoveries can be fast and furious, highlighting the risk of being too underweight China when pessimism is already elevated.
At the start of the year, investors and economists were confident that 2023 would be a challenging year for the economy, markets and corporate profits. In the event, however, growth has been better than expected, equity markets are higher, and earnings have surprised to the upside.
The secondary market can often relieve liquidity issues for investors in private equity by offering the opportunity to sell existing investments to another buyer.
At first glance, the jump in energy equities may seem like a temporary phenomenon, but a variety of economic factors could support the sector’s performance over the longer-term.
This paper, written by Marcella Chow and Adrian Tong, highlights the recent performance of Asia high dividend equities and the factors influencing its outlook with investment implications. (3-minute read)
This paper, written by Raisah Rasid and Adrian Tong, discusses the outlook for Asian assets in the current global yield environment. (3-minute read)
Given the shifting characteristics in the bond market and uncertainty around the path of rates from here, investors should engage in an active approach with proven managers in their fixed income allocations.
The question for investors, however, is which measure of earnings has the highest correlation with stock market returns.
This paper, written by Meera Pandit and Nimish Vyas, discusses our projections for the 3Q23 U.S. earnings season and the investment implications.
With two FOMC meetings before year end, investors and policymakers are closely monitoring the totality of incoming data to determine whether the committee will lift rates again or go on an extended pause.
Despite many looming threats to the economy, 3Q23 earnings season should hopefully represent a relative bright spot in the landscape.
This paper, written by Tai Hui, discusses the factors driving oil prices and the Fed policy outlook.
As rates have moved higher risk assets have found themselves under pressure, with the S&P 500 down more than 7% from its July 31st high of 4,589. To an extent, this price action has been driven by a shift in investor psychology whereby “good news” is now “bad news.”
It is still a close call on whether the economy will enter a recession or not, but we do believe slow growth is the most likely outcome, while risks for a mild recession remain.
If automobile production decreases, prices for vehicles, particularly used ones, may increase once more, unwinding some of recent disinflation and putting renewed upward pressure on “super-core” CPI.
After well over a year of anxiously anticipating an economic recession, the U.S. economy continues to look sound. However, as we enter the “fall of worry” there are several risks on the horizon this autumn: impacts from the UAW strike, rising oil prices, the resumption of student loan payments, and the potential for a government shutdown.
This paper, written by Tai Hui, summarizes the latest round of central bank meetings and discusses outlook for U.S., UK and European economy with its investment implications. (3-minute read)
This paper summarizes the key highlights from the latest Federal Open Market Committee meeting. (3-min read)
With the possibility of tighter financial conditions going forward, investors may be well served by looking for any signs that tighter conditions are beginning to weigh on activity.
This paper, written by Adrian Tong, highlights the driving forces and outlook of oil, food and metal prices, with their implications on policy and growth. (3-minute read)
Over the long run, duration will be an investor’s friend for both asset classes: not only will lower rates push bond prices higher, but a lower opportunity cost of owning equities and easy monetary policy should allow valuations and earnings expectations to move higher.
A likely pause in the US hiking cycle is now approaching. See how the peak in rates has impacted equity and bond markets in the past.
While what happens in China will continue to influence growth, sentiment, and performance in the broader EM universe, powerful structural and cyclical themes can lead to differentiated performance.
This paper, written by Marcella Chow and Adrian Tong, addresses the key drivers and outlook of Asian domestic demand with its investment implications.
We expect a slower growth and cooling inflation environment will allow the Fed to gradually reduce rates next year, thus stabilizing real yields and potentially biasing them lower.
This paper, written by Jennifer Qiu and Adrian Tong, discusses the risks of corporate caution in the U.S. and the impact on the Asia tech sector.
With many parents (and investors!) taking the end of summer to be with their families and go to the beach one last time, kids are not the only ones who need a refresher before they head back to the classroom; in today’s blog, we try to help parents get ready to go “back to school.”
2023 has seen more office conversion activity – while sometimes this can be easier said than done, it does suggest that there is an evolving opportunity in the office space for investors who can deploy additional capital.
This paper, written by Tai Hui, discusses China's property market, deflation risk and the investment implications.
India’s smaller share in global manufacturing exports and its lower dependence on the China reopening story helps to explain its strength versus other export-oriented Asian economies’ struggles.
This paper, written by Jordan Jackson, discusses the recent rise in U.S. 10-year Treasury yield and the investment implications.
This paper, written by Chaoping Zhu, Marcella Chow and Jennifer Qiu, discusses the recent China activity data and the investment implications.
The rally in corporate credit may have caught some investors by surprise given the consensus that a recession would materialize this year, a historically bad environment for credit spreads.
This paper, written by Karen Ward and Hugh Gimber, discusses sustainable investing returns performance and ongoing shifts in the landscape.
This paper, written by Tai Hui, discusses the state of the U.S. economy and the investment implications on fixed income.
Looking back at the past six U.S. stock market declines greater than 10%, international has not always sold off more. In some instances, it has performed in line or even better.
This paper, written by Kerry Craig, summarizes the previous highlights and upcoming outlook for central banks' meetings with investment implications.
This combination of resilient growth, better than expected profits and enthusiasm around artificial intelligence has led to a strong rally in U.S. equities so far this year.
This paper summarizes the key highlights from the latest Federal Open Market Committee meeting. (3-min read)
This paper, written by Tai Hui, discusses the outlook for India equities and the investment implications.
The likely cause for declining oil prices is increased U.S. production, which is expected to reach an all-time high in 2023.
While the Fed may need some more convincing over the next two meetings, it seems reasonable to expect this tightening cycle will end this year.
This paper, written by Meera Pandit and Nimish Vyas, discusses the recent U.S. equity market performance, earnings outlook and the investment implications.
It would not be surprising to see a more notable re-rating in valuations later this year or in early 2024; this, in turn, will create opportunity for both primary and secondary market investors.
This paper, written by Chaoping Zhu, discusses the inflation outlook for China, policy expectations and the investment implications.
Beneath the surface are two market dynamics: the megacap tech stocks, which account for the lion’s share of positive market performance year-to-date, and everything else.
Green bonds are attractive instruments for working towards positive environmental benefits. Find out why demand for green bonds from investors is expected to continue to grow.
A forced and rapid energy transition is under way. Discover what impact this will have on commodity markets and clean energy investment opportunities.
Our principle six time-tested strategies for guiding investors and their portfolios through today's challenging markets to reach tomorrow's goals.
Fortunately, like the experience in the U.S., this second increase in cases is not being accompanied by the same rise in fatalities as the first.