Latest from BCA Research

Thai stocks and currency will weaken over the short term. And yet EM equity portfolios should overweight Thailand as tourism revivals will rejuvenate this economy.

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.

Macroeconomic and business conditions are gradually becoming more favorable for Tech as the bottoming of demand is in sight. Yet, we don’t believe that now is an attractive entry point - the good news is fully priced in, and technicals signal a pullback. However, the sector is worth monitoring as we are getting closer to a sustainable rebound. Our positioning remains unchanged.

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.

Ironically, increased confidence that the economy can withstand higher bond yields may be necessary to lift yields to a level that is actually detrimental to growth. Thus, until more investors are convinced that a recession will be averted, a recession will be averted. Remain tactically bullish on stocks for now. A more defensive posture will likely be necessary later this year.

The tempo of China’s and the US’s military operations is picking up sharply. The risk of a sudden, perhaps unintended, escalation of military conflict, therefore, is rising in the South China Sea. So is the risk of another shooting war in the Middle East. Against this backdrop, China’s reopening, marginally stronger GDP growth, and massive fiscal stimulus to support renewables and defense is being rolled out. In states with high debt-to-GDP ratios like the EU and US, the risk of fiscal dominance is rising, and with it higher inflation. We remain long the XOP oil and gas ETF; the XME metals and mining ETF, and long the commodity COMT ETF to hedge this risk.

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.