In today’s briefing:
- US Treasuries Outlook: Economic and Policy Risks Remain, While Market Functionality Faces Challenges
- Positioning Watch: From Japan with Love
- Trust (The Bull), But Verify (There’s No Recession)
- How to Spot the Correction Bottom
- Portfolio Watch: Steep, steeper, steepest!
- EM BY EM #15 – Ecuador General Election as a catalyst?
US Treasuries Outlook: Economic and Policy Risks Remain, While Market Functionality Faces Challenges
- Contrary to expectations following turbulent regional banking events in March, the US economy has surprised to the upside with GDP growth above its potential rate.
- The loosening of yield curve control could impact future Japanese participation, but other factors, including US fiscal and monetary policy conduct and exchange rate movements, will also play important roles.
- The US Treasury has announced ambitious borrowing plans for 2023 H2, thereby raising concerns about the financial system’s ability to easily absorb high debt issuance.
Positioning Watch: From Japan with Love
- As always, we are here to take you through the relevant positioning data that we have gathered throughout the week.
- This week marked the first brutal decline in markets after a prolonged period of continuous rally, triggered by the BoJ decision.
- The sudden pullback in UST duration has had a spill-over effect on all markets.
Trust (The Bull), But Verify (There’s No Recession)
- Investors are faced with another situation where the technical and macro indicators disagree.
- The price charts screaming “cyclical recovery and new bull” while macro indicators are calling for caution.
- Investors are advised to trust the bull, but verify there’s no potential credit event or recession ahead.
How to Spot the Correction Bottom
- The U.S. stock market had been undergoing an unsustainable advance and a corrective period has probably started.
- We believe this is just a pullback within the context of an intermediate uptrend.
- We offer several clues on how to spot the corrective bottom.
Portfolio Watch: Steep, steeper, steepest!
- What a week in global fixed income! We thankfully rotated out of bonds and into cyclical exposures in steepeners, commodities, energy and materials ahead of the worst storm and the big question is now whether this is just a “hump” or the start of a broad steepening trend.
- In last week’s Portfolio Watch we declared that we anticipated a steepening curve:”Many are urgently discussing the ramifications of the BoJ move to push the band on the YCC.
- With equities already looking frothy and volatility being low we may see some reversal near term – or perhaps stonks just carry on their insufferable streak and shorts keep getting wiped out as shares are sold to buy cheap calls.
EM BY EM #15 – Ecuador General Election as a catalyst?
- Sovereigns are getting killed across the board this week and it is indeed difficult to find much optimism in that many assets as of this week.
- We take some encouragement from being long the least worse of a bad bunch and those few areas that have actually performed.
- With that in mind its probably a rather provocative proposition to suggest an event-driven sovereign EM sovereign credit play on a serial default criminal that may offer some decent risk/reward in the short term.
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