reports
- Keith Grindlay
Central bank tapering - an incentive for ESG? Environmental – Social -...
Adopting an ESG culture will attract a more diverse investor, can cheapen debt issuance and benefit shareholders, Equities, Bonds, Currencies Environment: Climate change Carbon emissions Pollution Biodiversity Deforestation Energy efficiency Waste management Water scarcity Flooding Social: Customer satisfaction Financing Data protection and privacy Gender and ethnic diversity Employee engagement Community relations Human rights Rule of Law Labour standards Gov...
- Keith Grindlay
Is it too late to address inflation? (US economic data roundup)
Central banks should be concerned how quickly the Chinese recovery is faltering, with producers bearing the brunt of higher prices.... In November 2020, Chinese 10 year yields were trading at 3.4%, but dropped to 3.15% before the end of the year, while US yields continued to rise. Following a correction to 3.3% in the first quarter, yields have since dropped to 2.85%. Since April, we have continued to favour Investment Grade Bonds over High Yields (see our April 3 report) and in June we said: ‘...
- Keith Grindlay
Commodity prices have fallen since our May 18 report, and we expect an...
Niggling doubts...Will $3.5tn make any difference, or create another problem for the next generation? The passing of a $3.5tn US spending bill and $1tn being spent on infrastructure projects has global implications, directly and indirectly. It has global inflationary implications, and potentially raises questions for Fed policies, as such large government spending will add to inflationary pressures; what impact will it have on long end yields? Commodity prices have fallen since our May 18 repo...
- Keith Grindlay
Back to the Future - In this report we consider the first half of 2021...
May and June might be the inflection point we have been warning of, where inflation starts to slow growth and the rebound. It is looking like H2 will become more interesting; bonds have broken out of their slumber, China has started to make the Nasdaq nervous, the Dollar is stronger, commodity markets have corrected, and GDP expectations are being lowered, whilst the improvement in US unemployment seems to be slowing. In this report we consider the first half of 2021, and our expectations for...
- Keith Grindlay
Commodity Super Cycle? Ask Latin America!
In August, we forecast a marked rise in global inflation, but warned that the risks would be in Producer Inflation, more than in Consumer Inflation; those risks have now increased. Markets will wait for evidence of a manufacturing slowdown in the PMIs of developed economies, which have continued to rise, but in Emerging Markets, PMIs in 2021 haven’t recovered to their peak of 2020; indeed, the trend has definitely turned lower, and it wouldn’t take much for them to become negative. In mid-May,...
- Keith Grindlay
Market Friendly Fed
So, the ridiculous dots were moved…The Dollar would have some recovery, even without the Fed meeting. GBPUSD at 1.42, USDCNH at 1.38, USDJPY at 110.75 and EURUSD at 1.22 were all at key resistance areas… So, the ridiculous dots were moved, as at this week’s FOMC meeting they signalled rates will be going up in 2023, twice. Even more ridiculous, the Fed has suddenly become hawkish. High inflation and inflation expectations meant the Fed had to react, but it has done the minimum it might h...
- Keith Grindlay
The week ahead June 13 - 18, 2021
Key market data and events Macro Thoughts will be focused on...Comments include... In our May 18 report, ‘Extremes’, we said ‘China’s rebound is slowing’. We also warned, ‘Commodity markets are filled with consensus trades, and look ready for a sharp correction’. Global bond yields started to trend lower from May 19, US yields have fallen to their lowest in three months, while long term moving averages for Chinese 10 year yields have started to cross. See Macro Thoughts, June 11, ‘Cost of Liv...
- Keith Grindlay
Cost of living Of greater concern for the Fed
‘Commodity markets are filled with consensus trades, and look ready for a sharp correction’, Macro Thoughts, May 18, ‘Extremes’. Global bond yields started to turn lower from May 19. A widening gap between consumer inflation (demand) and producer inflation (supply) should be of greater concern for the Fed and other central banks… Although we started to discuss a commodity market correction towards the end of April, the reversal of the Baltic Dry Index from its high around 3250 at the beginning...
- Keith Grindlay
What no Volatility?
Bond and Forex Volatility being sold to the lows, US yields at the bottom of the range, China bond yields falling, and moving averages crossing for lower…. US CPI, G7, FOMC, Jackson Hole, more Biden stimulus… In client calls earlier this week, and following our recent reports, the focus has been on CPI data concerns and market reaction. US CPI base effects will start to drop out after May’s data (hence the Fed’s ‘transient’ comments), therefore year on year data should start to improve. In t...
- Keith Grindlay
Fed’s dilemma - Over-optimistic NFP forecasts continue to make signifi...
Over-optimistic Non-Farm Payroll forecasts continue to make significant job gains look worse than they actually are; markets may yet need to adjust to a wave of job losses, from corporate cost cutting. We don’t believe US unemployment data alone will affect the Fed’s decision-making in June. Global inflation is now at the highest level since 2008, and rising; producer inflation is even stronger – the Fed, ECB, BOJ, RBA, BOE, etc., all have the loosest monetary policies on record, while governme...
- Keith Grindlay
Going unnoticed? We were right in our forecast for a weaker Dollar, bu...
Markets are now focused on inflation, as we have been warning, however the focus is still on consumer inflation, and not so much on producer inflation, which is where we see the problem...we continue to expect corrections, with the potential for an earnings recession.... The nervousness we have been anticipating since the end of April has started to have an effect on markets and this is clearly highlighted by the sharp rise in Fed repo activity, reflecting a move into cash. Bond defaults by C...
- Keith Grindlay
Extremes
We always have doubts and concerns when markets approach key levels that break multi-year, even all-time, trends.... Can the Federal Reserve really justify buying $40bn MBS mortgage bonds per month, when the US NAHB Home Sales index has now been above 80 for more consecutive months than the sum total of times it had previously been above that level? The National Home Builders Association has commented that, if lumber prices don't continue to fall, ‘you will see the homebuilding sector slow dow...
- Keith Grindlay
Imminent Commodity market correction?
Although we started to discuss a commodity market correction towards the end of April, the reversal of the Baltic Dry Index from its high around 3250 at the beginning of May gave us a confirmation of how demand was not meeting expectations – expectations of high consumer activity have been too optimistic. Markets have pushed asset prices to such extreme levels that this will inevitably become an issue for governments, particularly as the most vulnerable will be affected by rising commodity pric...
- Keith Grindlay
‘Transient’ to be tested now
Having met our target of 1.55%, we suggested following a spike to 1.75% for US 10 year yields, largely as stop-losses were triggered. In March, we suggested Treasuries would start to trade in a range between 1.50%/1.55% and 1.75%....Although it may feel that equities have been bullish throughout 2021, the move higher has largely taken place during March, as bond yields started to stabilise. If stocks cannot carry on their rally after meeting earnings expectations, and with Q2 GDP consensus expec...
- Keith Grindlay
Inflated Expectations
It’s all about inflation now, but when we first raised the prospect of fast rising prices in August, we received a considerable amount of push back. We continue to be concerned over producer inflation and anticipate this will slow the economic recovery once cheques, furloughs, etc., are ended, and this may be reflected in a surprise rise in unemployment in Q3; therefore, we also expect Savings Rates to remain elevated. MT Aug 24: ‘We have argued that it is demand that determines growth, but th...
- Keith Grindlay
They had started to feel a bit complacent
For the first time in a decade, the US will start to feel the impact of tax increases on the wealthy and, with further stimulus packages being suggested, markets and central banks will need to think differently. Having warned, since August, that inflation, especially producer inflation, would rise, we are now seeing rising prices starting to become an issue, which is why we maintain our lower than consensus global growth expectations for 2022. A European debt crisis that pushes peripheral yie...
- Keith Grindlay
Germany is moving in a new direction, starting a new era for Europe
With wholesale inflation inevitably pressurising consumer inflation over the next few months, how long will Germany be willing to allow interest rates to remain at negative levels, particularly if the Euro starts to weaken, amid growing political uncertainty? While the US election has given the Biden administration the ability to push towards a recovery, in Europe, the ECB’s attempt to provide a limited package of support is being challenged, as Lagarde faces the same pressures Draghi received....
- Keith Grindlay
Did this week give a glimpse into the future?
We have anticipated, since August, to expect US inflation to rise considerably above the Fed’s 2% target, targeting 10 year yields to rise from 0.68% to 1.55% in the medium term and, in the short term, to remain within a range between 1.5% and 1.75% - but new dynamics have started to hit the market which will have long term implications. As the US and the UK start to move out of lockdown, events over this week may have given some insight into what to expect in the future - a reminder for the ne...
- Keith Grindlay
Yeah, it’s good, but is it great?
Biden's 'once in a generation’ short term plan has a long term cost - Could this alone end the bond bull market? US Public debt at the end of February 2021 was close to $28tn; Biden will push it over $30tn, with 10 year yields likely to be closer to 3% than 1.5% next year. In August we foreacst higher US yeilds from 0.68% targeting 1.55% and higher.... Consumers will also face higher inflation, interest rates and debt levels. MACRO THOUGHTS LTD
- Keith Grindlay
When the Bears join the perennial Bulls in the China shop, something h...
Bond markets have now bought in to higher yields and other asset classes need to get used to that idea. Macro Thoughts March 18, 2021 The changes to their economic forecasts also look doubtful. Averaging the opinions of the 18 policymakers, they raised their GDP forecast for 2021 to 6.5% - higher than China’s... Higher inflation, along with consumer uncertainty, threatens the employment recovery and restricts wage increases, while higher production costs will reduce profit margins and CAPEX. ...
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