Insights & Interviews
GCIO Insights
A Fed Under Pressure
18th March 2024
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US bond market witnessed a sharp correction last week on unfavourable inflation data that unnerved investors
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Inflation data has signalled a persistence that must worry the Fed
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The FOMC will be under pressure to reassess its guidance to the markets at this week’s meeting
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Market prices just two or three rate cuts this year, down from seven in December
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Strong wage growth may prompt the Bank of Japan to start to tighten policy
Sticky Inflation Challenges the Bond Market
4th March 2024
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Inflation still a headache for global markets
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Last week’s US PCE data points to pockets of a reaccleration of inflation in the service sector
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Since Q4’23 the global trend has been of a stickiness to inflation and recently surprises to the upside
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Recent research reports question whether long-term US bond yields are structurally headed higher
A U.S. Rate Rise? Possibly, not Probably
19th February 2024
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US inflation data worries increase
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Economist sage Larry Summers urges us not to rule out a rate rise
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US 10- year bond yield in value territory
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UK equities get help from the better-than-expected retail sales, but only after a recession in Q4
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Nikkei within striking distance of its all-time 34-year high – we retain our positive view
Trying to Remain Sober at a Party
5th February 2024
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US economic data continues strong, under pinning equity market rally
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US economic data flows only supports Fed reticence to the cut rates
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Some signs that the best of the global disinflation news may be behind us
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As we fret about China, Korean and Taiwanese equity market look to be on a better footing
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Vietnam receives potential support from the US CHIPS act
How Should We Invest in Equities
29th January 2024
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US economic data surprises to the upside
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Fed likely to signal that rates may have peaked but it is likely in no rush to signal a cut
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US politics looks dysfunctional and worrying for the longer term
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Investors should question why they allocate 60-70% of their equity exposure to a country at war with itself
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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
Steady but not Stable
22nd January 2024
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We highlighted last week that the economic data flow could not stay at neutral
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In the US consumer spending surprises to the upside as does consumer confidence
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The UK sees an unfortunate spike in inflation
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Oil risk about balanced, in a complicated market
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Global bond markets witness a sharp rise in yields in recognition that central bankers are not minded to playing ball on rate cuts yet
Nothing has Changed, but Everything has Changed
8th January 2024
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From the exuberance of 2023 the markets transition to 2024 has been patchy
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Over the past two years asset markets have moved sideward and market has started the year with some nervousness
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Flat earnings and higher interest rates do not bode well for the US equity market's relative performance
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Global growth is starting the year on a mixed note while China still has its issues
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Watch out for inflation it may have regained some momentum
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.
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.
A Wake-Up Call from the Fed
2nd October 2023
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Bonds and equities give negative returns for the quarter
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The sharp rise in long term interest rates weighs heavily on the markets
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Much higher oil prices propels more inflation and the equity oil sector
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High yield bonds look vulnerable to a correction - EM debt less so
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Japanese growth still good but weak Yen worries foreign investors
Policy Makers Still Hard at Work
18th September 2023
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Fed to leave rates unchanged, but signaling is evident that its job is not done.
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ECB raises rates by 25 bps and signals rates to stay high for some time.
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Government bond yields pushing higher - oil prices a risk.
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China gives us some good news but foreign investors show little appetite to invest.
Growth Challenges the Markets
31st July 2023
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US economic data shows much more strength in growth than previously thought
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Inflation data has been at the lower end of expectations, but may re-accelerate
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A US 10-year bond yield of 4% is a challenge for US equity valuations
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European equities look better value after the 10% relative correction
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The Bank of Japan finally signals a shift in policy even if it is dressed up as temporary
Taking the Edge off the Risks
17th July 2023
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Weaker-than-expected US inflation data reduces the risk of further outsized Fed rate increases
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The dollar is likely to be under downward pressure as both the Bank of Japan and the ECB remain under pressure to tighten rates
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The reduced risk of a higher dollar and dollar interest rates is a boon for emerging market assets
It's Getting Hot Out There
10th July 2023
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World temperatures recently have been the highest on record
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US labour market strength coupled with likely still-high core inflation has the bond market worried
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US equity market looks complacent, but may remain so through a helpful reporting season
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Japan’s economy is running hot with strong CAPEX and wage growth
Geopolitics to the Fore Again
26th June 2023
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Geopolitics continues to unnerve markets globally
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US dollar, gold, and the bond market likely to be the kneejerk assets of choice
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UK MPC sprang a surprise and raised rates by 50bps
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UK longer dated gilts hold in but two-year bond yields spike
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European growth tips down and may take the equity market with it
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China’s equity market waits on the next Politburo meeting for a potential fiscal stimulus
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...
Really?
15th May 2023
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The drop in US inflation leaves long-term interest rates closer to real returns but not quite.
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US inflation expectations are still on the rise potentially pushing the case that bonds yields are not yet attractive enough for wholesale buying.
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Mixed economic data shows robust growth but clouds on the horizon from higher unemployment and tighter credit conditions.
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India – The growth market
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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...
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...
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...
