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GCIO Insights

Sticky Inflation Challenges the Bond Market

 

4th March 2024

 

  • Inflation still a headache for global markets

  • Last week’s US PCE data points to pockets of a reaccleration of inflation in the service sector

  • Since Q4’23 the global trend has been of a stickiness to inflation and recently surprises to the upside

  • Recent research reports question whether long-term US bond yields are structurally headed higher

National currency

GCIO Insights

A U.S. Rate Rise? Possibly, not Probably

 

19th February 2024

 

  • US inflation data worries increase

  • Economist sage Larry Summers urges us not to rule out a rate rise

  • US 10- year bond yield in value territory

  • UK equities get help from the better-than-expected retail sales, but only after a recession in Q4

  • Nikkei within striking distance of its all-time 34-year high  – we retain our positive view

Skyscrapers Above Times Square at Dawn

GCIO Insights

Trying to Remain Sober at a Party

 

5th February 2024

 

  • US economic data continues strong, under pinning equity market rally  

  • US economic data flows only supports Fed reticence to the cut rates

  • Some signs that the best of the global disinflation news may be behind us

  • As we fret about China, Korean and Taiwanese equity market look to be on a better footing

  • Vietnam receives potential support from the US CHIPS act

By the Great Wall of China

GCIO Insights

How Should We Invest in Equities

 

29th January 2024

 

  • US economic data surprises to the upside

  • Fed likely to signal that rates may have peaked but it is likely in no rush to signal a cut

  • US politics looks dysfunctional and worrying for the longer term

  • Investors should question why they allocate 60-70% of their equity exposure to a country at war with itself

  • Allocations to markets with better prospects than the US such as Japan and India should not be so heavily anchored on (low) MSCI index weightings

Monitoring market fluctuations

GCIO Insights

Steady but not Stable

 

22nd January 2024

 

  • We highlighted last week that the economic data flow could not stay at neutral

  • In the US consumer spending surprises to the upside as does consumer confidence

  • The UK sees an unfortunate spike in inflation

  • Oil risk about balanced, in a complicated market

  • Global bond markets witness a sharp rise in yields in recognition that central bankers are not minded to playing ball on rate cuts yet

Share Prices

GCIO Insights

Nothing has Changed, but Everything has Changed

 

8th January 2024

 

  • From the exuberance of 2023 the markets transition to 2024 has been patchy 

  • Over the past two years asset markets have moved sideward and market has started the year with some nervousness

  • Flat earnings and higher interest rates do not bode well for the US equity market's relative performance

  • Global growth is starting the year on a mixed note while China still has its issues

  • Watch out for inflation it may have regained some momentum

Fireworks

GCIO Insights

It doesn't get better, it gets tougher

 

16th October 2023

 

The Middle East is at the centre of global geopolitics once again – and this time for some grossly unfortunate reasons. Whether the developments will have a bearing on the financial markets is something that only time will tell, but the profound human suffering that has affected so many lives will certainly affect our collective psyche. Our hopes and prayers are for an eventual de-escalation and the restoration of peace in the region.

Old City Jerusalem

GCIO Insights

Don't get Anchored on the Wrong Past!

 

9th October 2023

 

In times such as these, investors need help in gauging the true value of the markets. For them, one of the toughest calls to take is estimating the fair value of the US 10-year government bond yield. In the past five years, the US 10-year government bond yield has ranged between as low as 0.51% and (very recently) as high as 4.8%. The task therefore is not easy.

Russian Rouble

GCIO Insights

A Wake-Up Call from the Fed

 

2nd October 2023

 

  • Bonds and equities give negative returns for the quarter  

  • The sharp rise in long term interest rates weighs heavily on the markets

  • Much higher oil prices propels more inflation and the equity oil sector

  • High yield bonds look vulnerable to a correction - EM debt less so

  • Japanese growth still good but weak Yen worries foreign investors

Oil derrick

GCIO Insights

A Wake-Up Call from the Fed

 

25th September 2023

 

  • US Fed signals the need for further tightening and the persistence of high rates

  • US 10-year government bond yield is still vulnerable to spiking to as high as 5%

  • With the Central Bank of Brazil in easing mode, Latam debt remains well supported

  • Bank of Japan on hold, but may be forced to raise rates soon

  • India debt on the brink of becoming more mainstream post inclusion in leading bond indices

Phone Call

GCIO Insights

Policy Makers Still Hard at Work

 

18th September 2023

 

  • Fed to leave rates unchanged, but signaling is evident that its job is not done.

  • ECB raises rates by 25 bps and signals rates to stay high for some time.

  • Government bond yields pushing higher - oil prices a risk. 

  • China gives us some good news but foreign investors show little appetite to invest.

National currency

GCIO Insights

Growth Challenges the Markets 

 

31st July 2023

 

  • US economic data shows much more strength in growth than previously thought

  • Inflation data has been at the lower end of expectations, but may re-accelerate

  • A US 10-year bond yield of 4% is a challenge for US equity valuations

  • European equities look better value after the 10% relative correction

  • The Bank of Japan finally signals a shift in policy even if it is dressed up as temporary

Financial Graphs

GCIO Insights

Taking the Edge off the Risks

 

17th July 2023

 

  • Weaker-than-expected US inflation data reduces the risk of further outsized Fed rate increases

  • The dollar is likely to be under downward pressure as both the Bank of Japan and the ECB remain under pressure to tighten rates

  • The reduced risk of a higher dollar and dollar interest rates is a boon for emerging market assets

Broker

GCIO Insights

It's Getting Hot Out There

 

10th July 2023

 

  • World temperatures recently have been the highest on record

  • US labour market strength coupled with likely still-high core inflation has the bond market worried

  • US equity market looks complacent, but may remain so through a helpful reporting season

  • Japan’s economy is running hot with strong CAPEX and wage growth

Beach day

GCIO Insights

Geopolitics to the Fore Again

 

26th June 2023

 

  • Geopolitics continues to unnerve markets globally

  • US dollar, gold, and the bond market likely to be the kneejerk assets of choice

  • UK MPC sprang a surprise and raised rates by 50bps

  • UK longer dated gilts hold in but two-year bond yields spike

  • European growth tips down and may take the equity market with it

  • China’s equity market waits on the next Politburo meeting for a potential fiscal stimulus

Crowd at a Demonstration

GCIO Insights

The Skipping Fed

 

12th June 2023

 

The FOMC board members appear convinced about not increasing interest rates at this week’s meeting. Despite higher inflation, a tight labour market, and economic data evidencing stronger-than-expected growth, the Fed will in all likelihood maintain status quo at this week's meeting...

Tall Buildings

GCIO Insights

Inflation Fight

 

29th June 2023

 

  • US and UK inflation surprises to the upside  

  • Market now prices a high risk of a further 25ps Fed rate increase at June meeting

  • US 10-year government bond yield getting closer to offering real value

  • Bank of England lacking credibility in its inflation fight

National currency

GCIO Insights

Really?

 

15th May 2023

 

  • The drop in US inflation leaves long-term interest rates closer to real returns but not quite.

  • US inflation expectations are still on the rise potentially pushing the case that bonds yields are not yet attractive enough for wholesale buying.

  • Mixed economic data shows robust growth but clouds on the horizon from higher unemployment and tighter credit conditions.

  • India – The growth market

Businessman Thinking

GCIO INSIGHTS

It's a Fuzzy World

 

24th April 2023

 

There’s lot of ambiguity out there. Economists (and the Fed) use the word recession often, but economic activity is not rolling over quite as fast as some had feared. Headline inflation is declining, but core inflation remains persistent. US corporate results are surprising to the upside. Investors, meanwhile, are split into two opposite camps, the worried and the sanguine, with the markets oscillating between the two extreme views.

Old Globe
Skyscrapers

GCIO INSIGHTS

History is Not on the Side of a Fed Rate Cut

 

10th April 2023

 

History says a Fed rate cut is not on the cards.

Looking back at the history of the circumstances that led to a cut in rates by the Fed, it is evident that an interest rate cut is not on the cards. Of course, a catastrophic fall in the markets or the economy could make the Fed rethink its plans.

GCIO INSIGHTS

Q1 Market Review - Better than it seemed

 

3rd April 2023

 

The just-concluded first quarter was a roller coaster. Just as the worries about higher inflation and higher interest rates for an extended period were unnerving the markets, the world changed suddenly. A mini-banking crisis took centre stage almost out of nowhere. Nevertheless, central bankers were quick to ride to the rescue to save the situation and calm sentiments. By the end of the quarter, the markets had raked in decent gains. However, despite those gains, there were still too many questions for investors to be firmly secure in their outlook for the markets. 

Judge's Table
Central control room

GCIO INSIGHTS

Central Bankers' Job is Far from Done

 

6th March 2023

 

The US 10-year bond yield drifted briefly above 4.0% last week before retreating to remain virtually unchanged on the week at 3.95%. However, the economic news flow remains emphatically negative for the bond market. Still, the fact that yields have not moved higher has perhaps to do with hope among investors that the economic data flow for February, to be published through March, will be weaker.

GCIO INSIGHTS

Corporate India in Focus as Adani hits the Buffers

 

30th January 2023

 

India’s Adani Enterprises, which scripted a somewhat unprecedented ‘growth story’ that invited both awe and occasional scorn, found the ground sinking beneath its feet last week as a US research firm’s damning account of the meteoric rise in the share prices of the conglomerate and its group companies unnerved investors. The report from Hindenburg Research – a firm specialising in shorting stocks – raises issues that are extremely complex in nature and strikes at the heart of parts of corporate India.

Mumbai India

GCIO INSIGHTS

Overtrading Risks Damaging your Portfolio

 

23rd January 2023

 

Last week was another week of commotion in the markets. A few days of negative returns had commentators talking about the downside risks before a better Friday showing from Wall Street had all the bullish comments hitting the wires again. As we have stressed upon all along, there are easier bets to take than just worrying about the level of equities. Asia performed well again last week and looks likely to continuing doing so aided by robust data, China re-opening, and reduced concerns about a significant tightening of monetary policies.

GCIO INSIGHTS

Cutting through the Tactical Noise

 

16th January 2023

 

The market's fixation last week with one US inflation number was intriguing. Even as we wondered if one month's data could prove anything, market commentators continued to appear distracted by the debate about the gap between what the market discounts and what the Fed will do next.

Business Meeting
Rush Hour

GCIO INSIGHTS

Shaping 2023

 

9th January 2023

 

As we hit refresh with the onset of a new year, we wish to highlight the factors that will, in our view, determine the path that asset markets will take through 2023.

GCIO INSIGHTS

2022: Well, I'm Glad That's Over

 

2nd January 2023

 

2022 could be characterised as one of the most challenging for investors in decades. The highest inflation in the memory of many, central bankers initially underestimated the challenges ahead, and a war in Ukraine brought losses across asset classes.

New Year Sign
Bill

GCIO INSIGHTS

Inflation and Central Bank Watch

 

12th December 2022

 

Major global central banks are due to increase interest rates this week. On Wednesday, the Federal Reserve should raise interest rates by 50 basis points matching market expectations (of dialled down rate increases). The European Central Bank and the UK Monetary Policy Committee should also increase rates by 50bps each, capping a year that saw significant monetary tightening.

GCIO INSIGHTS

Dream On

 

5th December 2022

 

The performance of markets in November and the early days of December reflects the hope that good news is just around the corner. The markets prefer to ignore the economic data that shows global economy is in a significant downshift in growth and facing prolonged high-interest rates. The markets prefer to discount the hope that interest rates will peak soon, and central banks will apply themselves to loosening monetary policy, and growth will resume...Dream on.

Dream House

GCIO INSIGHTS

Managing Tail Risks - US Government Bonds and the Oil Price

 

28th Nov 2022

 

Judging by history, the US yield curve has an extraordinary inversion. But what does it mean? Extraordinary, because since 1976 there have been only 21 quarters when the yield curve turned negative, which is equivalent to 11% of all quarters since then...

GCIO INSIGHTS

It's Just Not That Easy

 

21st Nov 2022

 

After the recent good US consumer and producer price inflation reports, it was easy to conclude that there are much better times ahead in the asset markets. Since the equity market low in September, the markets have rallied strongly on the back of good inflation data...

GCIO INSIGHTS

Deflating Exaggerated Worry

 

14th Nov 2022

 

What a difference one number can make! We knew that markets were primed to react to any word from a central banker that implied a pivot to comparatively easier monetary conditions ahead. However, it ultimately proved to be just one 'good' inflation data point that turned sentiments around...

GCIO INSIGHTS

Central Bankers Diverge, as Investors Go Bottom Fishing

 

7th Nov 2022

 

When it comes to global central banks, there’s no one-size-fits-all approach that does wonders. As the banks attempt to cure the ills of the global economy, they employ measures that are often widely different......

Hubbis Logo no shadow - CMYK.webp

GCIO INSIGHTS

Feature article with Hubbis

20th October 2021

Private Clients and the need to adapt investment portfolios with a proper
historical perspective - An Interview with Gary Dugan, CEO, The Global CIO
Office

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