CoreMacro
BCA’s flagship global macro and investment strategy platform, helping investors anticipate regime shifts, connect signals across regions and asset classes, and navigate the world’s most difficult macro questions.
True inflation rates in the euro area and in the U.S. are actually not that different, making the polarized divergence in expected monetary policy very difficult to justify.
The global search for yield, not an improvement in EM fundamentals, has been driving the EM rally. EM/China growth conditions have stabilized but not recovered. Barring a full-fledged cyclical profit upsurge in EM EPS, EM stocks are not cheap at all. EM/China final demand for commodities will disappoint and will likely produce a major reversal in EM risk assets.
More aggressive monetary and fiscal stimulus will be necessary to resuscitate the Japanese economy. While the BoJ's forthcoming review is likely to endorse the current policy stance, there is a good chance that Kuroda will open the door to more radical measures. These measures will push down the yen, giving Japanese stocks a lift in the process. Sentiment on the U.K. economy has gotten too bearish. We are closing our short GBP/SEK trade and going long GBP/JPY.
The euro area's NPL problem is unlikely to be solved quickly, constraining bank profitability and the capacity to lend. There are three important repercussions for investors.
Last week's blowout jobs report had the beautiful combination of strong growth and flat/rising underemployment rates. This supports our expectation of a Fed hike in December rather than one in September.Accelerating growth when the economy is approaching full employment suggests that the equity bull market is not over, though we are entering a more volatile phase.
