Latest from BCA Research
The disinflation process is over in Poland and Hungary. Only the Czech Republic will see its core inflation meet its central bank target this year. The reason is much tighter labor market dynamics in the first two. Investors should continue to short a basket of CE3 currencies vis-à-vis the US dollar.
China’s economy is cruising at a very low altitude. The odds are that China’s equity rebound is running out of time. The RMB will continue to depreciate versus the US dollar in the coming months, albeit the pace may be modest.
Q1 earnings results of the largest US banks have demonstrated that the engine of recent growth in profitability, NII, has faltered as funding costs are rising fast. However, the resurgence in non-NII thanks to a revival in corporate activity has been a saving grace. Earnings growth appears to have bottomed, while valuations are attractive. To play up portfolio exposure to an upcoming surge in capital markets activity, and minimize exposure to declining profitability in traditional banking services, overweight Diversified Banks and Capital Markets, and underweight Regional Banks.
European profits margins are elevated. Will a mild recession be enough to bring them down?
The implication is that Israel chose not to escalate the risk of direct war with Iran. Hence we remain in our base-case “Minor War, Minor Oil Shock” scenario.
This year’s rise in commodity prices represents a blow-off rally rather than the start of a durable bull market. The global economy is heading for a recession. Stocks, commodities, and other risk assets are vulnerable.
In this report, we review what our technical indicators are telling us about the G10 currencies.
Strong growth in the US and large EMs ex-China will translate into higher oil demand in 2024 – 2025. With mostly unchanged oil supply, tighter markets will ensue. We’ve raised our 2024 average Brent forecast to $98/bbl, and expect $105/bbl in 2H24. In 2025, we expect Brent to average $110/bbl. Prices could easily move higher, if the US moves against one or all of the states enjoying US sanctions forbearance – Russia, Iran, Venezuela. If Brent trades through $110/bbl, Saudi Arabia and the UAE will release spare capacity.
Our quant models suggest Democrats are still slightly favored for the White House. Our Senate model favors Republican control, though Montana and Ohio are the weak links that could deliver Democrats a de facto Senate majority in the event they keep the White House. But there are still six months before the vote. An oil shock from the Middle East or other negative economic news would force a major change to these models.