Views and perspectives
Chi Time: What’s new in China’s 2019 outlook?
High levels of local concentration suggest employers have market power
Out now: our take on markets and the economy and our asset class expectations
If you can, help others; if you cannot do that, at least do not harm them. - Dalai Lama Summary The Sino-US trade tension risks escalating to a new cold war, which could cost not only China and the US, but also the world economy, dearly. Collateral damage to the global system could be another round of currency war in the short term with new volatility dynamics coming from China. If the end of the last Cold War fostered global economic integration, the beginning of the next one - between China and the US - will likely produce fragmentation, with long-term consequences on even technological innovation and climate change.
Equity markets' usual year-end Santa Claus rally might get an additional boost
The primary themes impacting the yields of US Treasuries and the pricing of future levels of inflation (via breakeven inflation rates (BEIs)) have changed little in the last few months. They continue to generate a range-trading environment for US Treasury bonds and TIPS.
Growth dynamics and demographics add to the arguments in favour
Does the FOMC hope that with only moderate policy tightening, it can eventually succeed in returning US inflation to objective after an overshoot?
The financial sector had been assumed to be one of the equity sectors that would outperform the broad S&P 500 index in 2018. Robust US economic growth following the passage of tax cuts would boost cyclical sectors and deregulation would enhance profits. But instead of market-beating returns, the sector’s total return up to 27 June was -4.3%, compared to a 3.0% gain for the rest of the index. What are the reasons for the disappointing figures? Might things turn around by the end of the year?
Hopes were so high. At the start of the year, the ‘Goldilocks’ environment — characterised by above-trend global growth, contained inflation, and moderate volatility — looked set to continue, if not quite as strongly, in 2018.
Taking a closer look at how the tariff cards may play out and which markets may suffer the most should things get nasty
What are the implications of recent political events in Italy, deepening trade tensions and the June FOMC meeting?
At the 13 June meeting, the Federal Open Market Committee raised the target range for the federal funds rate by a quarter point to 1.75-2.00%, marking the seventh increase in US interest rates of the current cycle.
In China, policy is driving the push to cleaner energy, but the setup in India makes the transition tougher
Cooling growth, inflation becoming ‘too hot’ - what is the outlook for Goldilocks?
Inclusion of mainland-listed stocks marks milestone in the opening of China’s financial markets
"If you can't re-use it, refuse it"
How did the largest drop in nearly two years start and when will it end?
With developed market inflation looking set to rise in the coming months, investors would do well to understand the implications for their portfolios and to consider how best both to hedge against inflation and achieve greater diversification
Valuing the stock of renewable and non-renewable resources – our natural capital – adds another perspective to investment decisions, for example, in terms of the potential risks that ecosystem impairments present to the outlook for industries ranging from agriculture to tourism. Mapping natural capital dependencies matters to investors, argues Robert Poujade.
While oil has been the star performer among commodities so far this year, the balance of risks is shifting towards a re-alignment with other growth-sensitive assets. Indeed, the risk/reward profile for crude oil prices appears skewed to the downside.
The most recent run up in US Treasury yields (the 10-year benchmark bond yield peaked at 3.03% on 25 April 2018, though it had fallen back to 2.94% by 4 May), and the lacklustre performance of US equities, have renewed worries about the outlook for the stock market in face of higher financing costs. Many investors are worried that with price-to-earnings and price-to-sales multiples still at elevated levels, they could see multiple compression even if earnings growth remains good (the price-to-next-twelve month earnings ratio on S&P 500 is around 16.8x and price-to-sales around 2.1x, both well above long-run averages).
As the UK prepares to leave the EU, the lack of clarity on how the split-up will work confounds the outlook for both the British economy and UK property stocks.
The decision by the Trump administration to impose tariffs on US imports of steel and aluminium has unsettled politicians, commentators, investors and financial markets as it could be the opening salvo in what turns out to be full-blown trade war.
One of the metrics most often cited for measuring equity market valuations is the Shiller P/E, also known as the Cyclically-Adjusted Price/Earnings ratio (CAPE), defined as the price-earnings ratio based on average inflation-adjusted earnings from the previous 10 years.
Read about our asset class views and our economic and policy analysis
It was of course inevitable (in retrospect) that the strong performance of the technology sector over the last year would suffer a reversal; it was just a question of when and what the trigger would be. In the end, there were two guns: tariff threats from the Trump administration, and rising concerns about taxes and regulation following the Cambridge Analytica revelations about the misuse of Facebook user data.
In considering what drives breakeven inflation (BEI) rates, mostly the gap between the yield on 10-year US Treasury inflation-protected securities (TIPS) and that on regular 10-year Treasury notes which acts as a measure of expected inflation, our approach involves the analysis of their components, namely (i) expected inflation (ii) inflation risk premiums (iii) liquidity premiums.
In March, Britain and the EU reached a milestone agreement in their Brexit negotiations, but the road to a sensible outcome remains complex and long, with ample opportunity for spats and setbacks along the way.
On 9 April, Haruhiko Kuroda began his second term as governor of the Bank of Japan (BOJ), facing a familiar challenge.
Join our strategy and economics experts at the 25 April webcast
Trade war scenarios: tackling volatility and risk-off situations
When the owner of a small Peruvian farm moved to sue a giant of the energy industry, no-one noticed, but, as the case progresses, it could have a major impact on legislation and how future lawsuits brought on the grounds of global warming are handled. It could also spur the investment needed to accelerate the technological advances to deal efficiently with the menace of climate change.