Our Research

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17 Jan 2020

China GDP - war and peace

  • GDP growth rate slows, but clear signs of stabilization emerging
  • Strong infrastructure investment recovery underway
  • Net exports support GDP through the trade war
16 Jan 2020

Macro Picture: Three themes for 2020

The consensus expects a modest economic revival in 2020, enough to keep the global expansion going, but not sufficient to generate inflation or force policy tightening. We present three themes that could challenge this narrative:

  • a rebound in global capex/IP; 
  • faster wage growth, and
  • dollar weakness/the end of US ‘outperformance’.
12 Jan 2020

US Watch: Risk returns

Economics: Recent data underscore risk to growth

  • Slower employment, slower wages mean slower retail
  • Wholesale and import data reveal beginnings of an inventory correction
  • Fed policy swamps market pricing
18 Dec 2019

Global Financial Trends: Global Liquidity Heatmap

  • We create a global liquidity heat map, with a focus on the Eurodollar market
  • Five reasons why the much-feared year-end liquidity squeeze is less likely this year.
  • There are many risks to the financial cycle and many amplifiers, but the headwinds have certainly eased - for now
04 Oct 2019

The View: Japanisation & Europe

  • Japan’s root problems: mismanagement of product strategy …
  • And a docile labour force too willing to ‘pay’ by accepting wage cuts
  • The spread of ‘Japanisation’ to the US is therefore inconceivable
  • Europe has the symptoms: slow growth, deflation threat, negative rates
  • But in the EA, slower growth has resulted from the euro structure
  • Products are competitive and labour forces do not accept wage cuts
  • Divergence of German and Italian labour costs is especially acute
  • Over time, the chief reason has become falling Italian productivity
  • ECB interest rates are negative to protect uncompetitive Italy
  • Germany has become indefinitely undervalued in labour costs
  • Excessive budget austerity has made the whole EA export-dependent
  • Growth potential is slipping, as in Japan, but both may ‘muddle through’
  • Populism adds to EA vulnerability to accidents
04 Oct 2019

Daily Note: Employment data keep Fed on hold - for now

  • FOMC views this as the new equilibrium for jobs. It isn’t
  • Service sector hiring is slowing. So is wage growth, following profits
  • FOMC prefers October meeting to only relay balance sheet adjustment
03 Oct 2019

Daily Note: EA Economy: Quicksand

  • Manufacturing recession continues; households support services for now
  • Disinflation boosts real incomes, but labour market tailwinds are abating
  • Absent domestic and/or foreign stimulus, the EA is walking on quicksand
12 Sep 2019

Macro Picture: Recession scare

With yields inverted and a slump in global manufacturing, investors are increasingly worried about the prospect of a US recession. We do not think recession is the most likely outcome over the next 12 months, but there is a risk that a period of sluggish growth and disappointing corporate earnings turns into something nastier. Here’s how...

05 Aug 2019

Daily Note: Weaponizing the yuan

  • USDCNY breaking 7 is a form of retaliation for “bad faith” negotiations
  • The yuan will devalue another 3% in August and could break 7.5 in 2020 if all tariffs on Chinese imports increase to 25%
  • Capital outflows will likely be capped below US$100bn per month
29 Jul 2019

EM Watch: Not bottoming out

  • Global: Trade remains an underlying drag
  • China: Inventory liquidation to hit growth
  • Brazil: Weak economy weighing on fiscal
  • India: Fiscal credibility increasingly in question
  • Russia: The CBR’s cautious easing explained
  • Thailand: No export recovery in Q3/19
  • Turkey: Stagnant growth drives rate cut
  • Strategy: India: 10yr USD bond spread 90-110bp
26 Jul 2019

Global Financial Trends: The €1.5 trillion question (in charts)

  • We expect the ECB will announce a new stimulus package in September
  • It may include a rate cut, a multi-tiered deposit rate and the restart of QE
  • We expect QE-II to include public sector bonds, non-bank private debt and supranational bonds
  • The size of eligible assets range from EUR1-1.5 trillion, depending on whether the ECB eases its QE curbs
  • But , the fresh stimulus is unlikely to boost the EA’s relative competitiveness
  • The ECB is pushing on a piece of string and it is aware of it
18 Jul 2019

Macro Picture: Debt trapped

Global debt ratios have continued to rise over the past decade, as low interest rates kept the world growing in spite of secular economic weakness. After a brief market panic in 2018, the prospect of renewed central bank easing has supported sentiment and re-ignited the search for yield. But where is the balance sheet to ‘reflate’ global demand?

11 Jul 2019

China Watch: Trade truce no panacea


  • Export growth to remain weak in H2/19
  • Manufacturing and property investment weigh on headline growth
  • Measured monetary stimulus continues 


  • The US is increasingly preoccupied with currency manipulation
  • China is prepared to maintain a stable currency as part of a trade deal
  • The reduction of downside renminbi risk will benefit wider EM FX


  • Beijing steps up market-opening reforms in manufacturing and services to entice foreign investment
  • There is more style than substance in the hastily drawn-up measures
  • Financial sector reforms will do little to level the playing field for foreigners
07 Jul 2019

US Watch: Policymakers losing control of their narrative?

Economics: Fed’s grasp of the economy can slip

  • Higher inflation goal means risk/reward favours FOMC doing more now
  • June employment data do not alter the narrative of slower growth
  • Is 2019 a repeat of 2016? Construction data say no

Markets: Fed losing control of the funds rate?

  • Controlling fed funds rate floor to get tougher with low excess reserves
  • New debt ceiling to boost issuance and again widen funds/IOER spread
  • Stealth QE to the rescue?

Politics: New era of arbitrary political risk for tech

  • Weaponizing tech interdependence
  • Huawei still in US sights
  • Japanese export restrictions threaten global supply chains

28 Jun 2019

The View: You ask - we reply

  • TS Lombard View devoted to answering client questions
  • Trade war is about ‘Who’s no. 1?’ – truce in spring, 2020, but no solution
  • Biggest damage has been outside the US and China
  • Non-oil EMs (esp. outside SE Asia) badly hurt by dollar-up/yuan-down
  • Japan, Korea, German-centred Europe and Italy also hurt
  • ‘Japanisation’ of EA unlikely, but populist ructions probable
  • US slowed by weaker exports & capex, with inventory overhang
  • Strong dollar also lowers US inflation – rates to be cut 50bp in 2019
  • Chinese growth bottoming out in 2019 H1, H2 recovery only modest
  • US$ hegemony as reserve currency to be gradually eroded
  • Inflation targets – folly – monetarist monopoly caused poor recovery
26 Jun 2019

Global Leading Indicators: Dollar smile

  • Fed shifts to risk management mode as downside macro risks intensify
  • US economic policy turning less dollar-friendly
  • Leading indicators sending mixed signals, industrial cycle still in shackles
  • The world economy needs a weaker dollar, stable China
11 Jun 2019

Daily Note: Where we stand - Our highest conviction views

  • Trade war Trumps all
  • Growth slowdown to intensify in Q2 and Q3
  • Fed now pushed into two rate cuts in 2019, RMB to break 7 vs USD
  • Despite the constant noise US and EM stocks are still too richly priced
09 Jun 2019

US Watch: Powell's patience being pushed

Economics: Fed’s summer vacation is cut short

  • Employment data reflect weakening activity
  • Trump’s tariff war with China lowers inflation expectations
  • Fed to cut rates in June?

Markets: Powell polishes his put

  • After Powell’s remarks, rate markets now discount multiple Fed cuts
  • Equities have rallied, perhaps a sign of investors’ trust in the Powell put
  • But the reaction in the two markets is not entirely consistent

Politics: Bullying Mexico

  • Trump advances on key political goals as he steps back from the brink
  • Senate Republican rift sets outside limits to presidential overreach
  • Looking ahead, watch legal challenges to “Remain in Mexico”
03 Jun 2019

The View: Trade war raises recession risk

  • We stick to our view that trade-war threats will be contained, BUT
  • While the June G20 meeting may steady nerves, major risks remain
  • This View is a glimpse over the brink
  • ‘Who’s No.1?’: now the key driver – trumping Trump’s agenda & tactics
  • US v. China rivalry will fester into the 2020s even in the benign scenario
  • A globalised world could shift to regional blocs, hurting equity values
  • The short-term danger of the trade-war negotiations derailing is high
  • Failure to extend the Huawei truce in August could ruin scope for a deal
  • If so, the world economy could tip rapidly into recession
31 May 2019

Global Leading Indicators: Wake-up call

  • Trump’s tactics turn investor focus from Goldilocks to a slowing world economy
  • Macro momentum lacklustre as the US cools, PBoC balance sheet shrinks
  • EM green shoots under threat from prolonged trade war, strong dollar
  • Equities catching down with bond yields, choppy markets here to stay
08 Apr 2019

EM Watch: Asset Allocation + EM in charts

  • Strategy: Asset allocation summary
  • China: Profit crash
  • Brazil: New microeconomic reform agenda
  • India: Softer RBI amid growth worries
  • Russia: Personal loan fears
  • Mexico: AMLO vs 2020 fiscal goals
  • S.E. Asia: Thailand bucks the inflation trend
  • Turkey: Reform pledge not to be trusted
  • Monthly EM slide deck: EM in Charts.
04 Apr 2019

China Watch: Profit crash


  • Infrastructure investment will lead government stimulus efforts
  • But a run of negative economic figures is likely before such fiscal stimulus kicks in
  • After a strong performance in Q1/19, equities appear fully valued


  • PPI decline will weigh on profits and investment
  • 2019 will be another record year for corporate defaults
  • Nominal GDP growth below 7% will trigger a strong policy response


  • Structural reforms will be resisted
  • Communist Party stresses political security
  • Anti-corruption campaign takes on new dimension
02 Apr 2019

Daily Note: Where we stand - our highest conviction views

  • Global macro data to disappoint
  • Deflationary pressures rebuilding
  • Yield curve inversion will reinforce Central Banks’ s dovish response
  • EM equities due further consolidation/correction
29 Mar 2019

Global Leading Indicators: The playbook is changing

  • Yield curve inversion says the US slowdown has legs
  • Global recovery set on a shallower path than in 2016/17
  • Dollar resilience predicated on the ‘wrong’ reasons
  • Macro backdrop points to equities ‘catching down’ with bond yields
13 Mar 2019

Daily Note: Change of view: Stable Yuan in 2019

  • Political considerations will shape the near-term Chinese currency outlook
  • Larger foreign portfolio inflows will support a stable yuan in 2019
  • But abandoning currency depreciation means other stimulus measures will have to be strengthened in order to stabilize growth later this year
12 Mar 2019

US Watch: Fed's "patience" being tested

  • Disinflationary trends evident in CPI data
  • Interplay of equities and household wealth slows retail spending
  • Pull-forward of end of QT tells us their patience for disinflation is short
07 Mar 2019

China Watch: China turns inwards


  • NPC policies proposals support Xi’s vision of a self-reliant China
  • Global policies are ceding to domestic ones, as seen by the shift in emphasis from “Belt and Road” to “Greater Bay Area”
  • Two pieces of legislation to pass through the NPC this week will exacerbate the US-China “tech war”


  • Government work report sets 6-6.5% GDP target; we expect 6.2%
  • Sustainable fiscal stimulus will support a moderate growth rebound
  • NPC credit goals are unfeasible, further stimulus will cause broad credit revival


  • The authorities will struggle to deliver a boost to growth via monetary measures and will be forced to introduce additional stimulus
  • Magnitude and real economy impact of monetary stimulus will disappoint
04 Mar 2019

Global Financial Trends: The TLTRO bazooka (in charts)

  • Longer-term refinancing facilities have become a key policy tool for the ECB since the global financial crisis
  • We expect a fresh round of TLTROs to be announced in March or at the latest by June
  • In its absence, Italian and Spanish lenders could face a significant funding squeeze by mid-2019
  • Some claim TLTROs is a more powerful tool than QE
  • But the refinancing operations are not a magic wand
  • The euro area needs a demand – not a supply – boost
  • But a meaningful fiscal stimulus is missing
  • Expect more backdoor fiscal transfers


06 Feb 2019

Daily Note: Powell repeats Maestro bubble?

  • A fed rate cut could repeat Alan Greenspan’s ‘mid-course corrections’
  • The ‘Powell put’ echoes the Fed’s ‘insurance policies’ of 1995 and 1998
  • But could the move also unleash one final late-cycle meltup?
04 Feb 2019

EM Watch: Reasons to be cautious

  • Global: Multiple factors weigh on EM risk
  • China: Investors’ views of stimulus and deflation
  • Brazil: Congressional leadership boost to reform
  • India: Budget populism vs fiscal discipline
  • Russia: Homebuilding and mortgage positives
  • Mexico: GDP slows, labour strife grows
  • Malaysia: Gloomy outlook despite export pick up
  • Strategy: Asset allocation summary
23 Jan 2019

The View: Trade war damage to trigger Fed rate cut

  • 2018’s rising dollar and falling yuan caused an EM-led global slowdown
  • Triggers were Fed QT with a doubled US federal deficit, and trade war
  • EMs incl. China, 40% of world GDP, could be very slow in early 2019
  • Export dependent DMs, Europe and Pacific rim, also hit
  • The high dollar hurts US exports, and S&P earnings, while capex slows
  • Latest Fed hike hurt after stock prices slumped, also gov’t. shutdown
  • Fed will taper QT soon, and then cut rates a notch in Q3
  • With Chinese stimulus also coming through, recovery into 2020
15 Jan 2019

Daily Note: Battle of Brexit joined

  • Parliamentary defeat for May’s deal starts real Brexit options contest
  • Brexit day will slip beyond March; ‘no deal’ ever more reliably blocked
  • How to spot the winner: look to see which camp shifts fastest and smartest from game-of-chicken logic towards bold gambits


14 Jan 2019

China Watch: China trade: Worse to come in Q1

  • Trade talks turning positive but export slowdown already baked-in
  • Lagged trade war effects and weak demand to weigh on Chinese trade
  • Disinflation risks rising fast, export prices to weaken
14 Jan 2019

EM Watch: Disinflation and trade woes


  • Global: External factors to hit EM FX
  • China: Towards a two-stage trade deal process
  • Brazil: Stage is set for economic recovery
  • India: Easier monetary policy on growth fears
  • Russia: Rusal/En+ and de-dollarization
  • Mexico: Toll to mount as fuel crisis continues
  • Turkey: Pre-election support measures rolled out
  • Philippines: Trade balance likely to weaken
  • Strategy: Asset Allocation summary
06 Jan 2019

US Watch: Powell Flips the Script

  • Economics: Balance sheet in play
  • Markets: The Fed’s balance sheet in 2019
  • Politics: US-China trade talks resume
13 Dec 2018

Macro Picture: Growth Scare

Global growth has slowed materially in 2018, contrary to consensus forecasts 12 months earlier. Three forces are to blame: (i) deteriorating financial conditions; (ii) Chinese policy tightening, and (iii) trade-war uncertainty. EMs have suffered most. While a global recession is unlikely, weak growth provides a choppy environment for markets in 2019.

10 Dec 2018

Daily Note: India: Hit to central bank credibility

  • Governor’s exit signals irreconcilable differences with the government
  • Government will push to use RBI reserves and ease financial norms 
  • Credible replacement needed to restore RBI’s institutional autonomy
28 Nov 2018

Daily Note: Tensions over technology at G20

  • White House opens up a new front in the trade war, dashing hopes of de-escalation at weekend Xi-Trump meeting
  • Administration takes three key moves to block development of China’s high-technology industry
  • Xi will fail to convince Trump China is opening up to foreigners
22 Nov 2018

Global Leading Indicators: Glass half-empty

  • World economy lacks impetus as DMs lose momentum
  • US economy set to slow in 2019
  • Germany under pressure as growth tailwinds recede
  • China on the back foot despite easier policy
  • Japan, Korea stuck in low gear
  • India on the mend but macro risks still elevated
  • Stagnant real wages complicate Australia's macro outlook
  • Brazil/Mexico looking for direction
02 Nov 2018

China Watch: Dont get too excited about stimulus

  • Beijing is not simply repeating an old-style credit easing to prop up the economy
  • The positive spill-over effect of China stimulus on the global economy will be offset by further yuan devaluation
  • Growth will decelerate further until a stronger policy response in H1/19
29 Oct 2018

Daily Note: Schrodinger’s Brexit

  • We expect BINO to be the final outcome of the Brexit negotiations; until then the currency market discounts all risks
  • GBP currently mid-range; we examine the bull and bear cases
  • UK financials likely to respond temporarily to GBP repricing, but fundamentals matter more for index investors
22 Oct 2018

Daily Note: When the tide goes out

  • End of QE is a major regime change with significant consequences
  • Rising USD demand for year-end could trigger more liquidity tightening
11 Oct 2018

China Watch: Record Bond Defaults

  • Value of bond defaults reaches record high
  • Defaults reflect continued focus on deleveraging and moral hazard
  • Neutral monetary policy favours government-linked bonds
10 Oct 2018

Macro Strategy: Decompression sickness

  • Term premium decompression has further to run
  • Curves to bear-steepen: stocks historically benefit, but a different cause this time means a different consequence
  • We raise stops on MSCI DM/EM and Gilt-Bund spread trades
10 Oct 2018

Daily Note: The 20/20 recession

  • Most of the sellside is talking about a global recession in 2020
  • Usually they blame the Fed, which apparently can’t see the ‘obvious’
  • Trade wars are a threat but the long expansion could continue
07 Oct 2018

US Watch: Real growth, real yields, real politik

Economy: Real growth for now, but this isn’t 1969
Markets: Real yields have limited impact on stocks
Politics: Realpolitik in the South China Sea

05 Oct 2018

Daily Note: Who killed the synchronized boom?

  • The ‘synchronized global growth’ theme disappeared in 2018
  • Instead, ‘US outperformance’ has been the main macro narrative
  • Trade wars & oil are the main threats to an already soggier outlook
03 Oct 2018

EM Strategy Monthly: Short-term relief but no medium-term let-up

  • Risk: We raise our call on overall risk to moderate negative from strong negative.
  • Brazil: We raise our call on equities to positive as we expect a hope rally following the election this month.
  • China: Growth has been little affected by Trump’s trade war; we move to a positive call on equities after the recent downturn.
  • Russia: With its large current account and fiscal surpluses, Russia is in a strong position to outperform; we maintain our positive call on equities.
03 Oct 2018

Macro Strategy: Dollar demand danger

  • Wider basis swaps a reminder that offshore dollars are still scarce
  • Last year’s combination of factors unlikely to be repeated, but new risks mean liquidity squeeze remains possible
  • Fixed income undergoing regime change, exacerbating risks in a fragile environment
28 Sep 2018

October 2018 Chartbook

  • Macro Drivers. Trade war becoming material, EM headwinds unlikely to fade
  • Multi Asset. US equities tend to outperform when the dollar strengthens – but will it?
  • Fixed Income. The importance of global QE as a factor driving fixed income markets is already fading
  • Currencies. USD picture against DMs mixed; EUR supported by changing EA balance of payments 
  • Equities. US capex continues to accelerate, and the outlook remains rosy
  • Commodities. Both technicals and fundamentals suggest the Brent-WTI spread should narrow
21 Sep 2018

LSR View: From trade wars to trading blocs

  • The US-China economic conflict will be long and ugly with little chance of a deal anytime soon
  • Further US escalation to 25% tariffs on the bulk of Chinese exports is likely
  • Markets will drive a re-globalisation of China trade and spur the creation of an Asian trading bloc centred on the PRC
  • China’s trading partners in East and Southeast Asia will reap positive benefits over the medium term
  • Trump’s goal of reshoring manufacturing jobs to the US will not be realised
  • The degeneration of a globalised trading world into regional blocs will in the long run reduce CAPE and thus equity valuations
  • A bear market is a major risk over the next two to three years
11 Sep 2018

Daily Note: Is Brazil the next Argentina?

  • Fiscal solvency requires both a reform-minded president and Congress
  • The leading presidential candidate supports needed reforms but has not demonstrated the political skills to get them through Congress
  • Candidates on the left are proposing a return to populist policies
09 Sep 2018

US Watch: Trump Tariffs Set to Trip Growth

Economy: Tariffs nipping at growth?
Markets: Tighter liquidity starting to bite
Politics: Democrats lock onto Trump, little else

05 Sep 2018

Daily Note: EM contagion: Crisis upon crisis

  • Argentina, Turkey could be manageable, Brazil less so, China not at all
  • EM crises, tighter liquidity and Trade War lead to correlated markets
  • Negative feedback to DM will be via trade and China
04 Sep 2018

Daily Note: China ready for grim trade fight

  • Current US-China tensions are not comparable to 1980s trade tensions
  • China believes its economic system is under attack, and will fight back
  • Major further yuan devaluation is likely if recent US threats are for real
  • Damage to Japan, Korea and numerous EMs could hurt all risk assets
23 Aug 2018

Macro Picture: Nineties Tunes

Fed tightening, EM crises, tech “bubbles”, a long expansion, potential yield curve inversion – there are striking similarities between the current macro environment and the late 1990s. But the nineties also produced a productivity boom. Toxic politics and poor technological diffusion could prevent a similar revival today.

09 Aug 2018

Macro Picture: Inversion Fear

Investors are worried about central banks overtightening, particularly with the flattening US yield curve. While the curve remains a useful signal, there is a huge difference between ‘flat’ and ‘inverted’.  US officials have a long tradition of ignoring inversion but it would take an unduly brave Fed to force the issue today. 

07 Aug 2018

Daily Note: Trade war morphing into FX war

  • China seems highly likely to retaliate vigorously to fresh US import tariffs 
  • The dollar, up 7% in real terms, and yuan down 8%, could move much more 
  • China will need to devalue fast to get ahead of and dampen capital outflows 
  • An FX war would certainly be damaging for stocks, perhaps bonds too 
20 Jul 2018

LSR View: Rough trade to batter markets

  • Settlement of US-China trade disputes unlikely before US Mid-term elections 
  • Any deal would be unlikely to promise a big rise in US manufacturing jobs 
  • Extending the trade war to attack European surpluses could generate such jobs 
  • Continental European trade surpluses are the chief counterpart of US deficits 
  • Euro-Japanese savings gluts have caused consistent US$ overvaluation 
  • Uncertainties over trade wars could cause short-term stock market slump 
  • Voter response to trade wars unlikely to be fully clear before 2020 elections 
  • Breakdown from globalisation into regional trading blocs a long-term risk 
16 Jul 2018

Global Financial Trends: Emerging crisis (in charts)

  • Emerging markets (EMs) are in the firing line on multiple fronts 
  • Cumulative monthly purchases of G4 central banks likely to cease by the end of next year 
  • Large $-borrowing makes EMs particularly vulnerable to higher Eurodollar funding costs 
  • Trade wars intensify uncertainty at a time when volatility and risk premia are rising 
  • Higher energy prices are an added worry for oil importers with large external funding needs 
  • Yet, EM FX drop against the dollar has been more severe than in 2013 taper tantrum 
  • But gains in overall EM competitiveness are relatively modest  
  • The starting point is relatively better for most EMs than half a decade ago… 
  • …but headwinds are more significant this time around 
  • We create a heat map to assess risks and opportunities among EMs 


08 Jun 2018

LSR View: Unstable equilibrium is global

  • Our central forecast remains ‘steady as she goes’
  • But the risks have increased – notably the threat of trade war
  • Yet that could mean a continued cheap euro, helping EA growth …
  • ​… and plenty of money flowing into the US, holding down rates there
  • Meanwhile the techies are still innovating, and capex is picking up
  • Even Italy’s troubles have their bright side – fiscal stimulus could help
  • And China remains in the background, with 6% growth and contained debt
07 Jun 2018

Global Financial Trends: Italy is systemic (in charts)

  • Euro break-up fears surged last week on political uncertainty in Italy
  • Re-denomination and contagion risks have eased since then
  • But Italy remains the biggest threat to EMU stability
  • Foreign claims on Italy dwarf the combined liabilities of Greece, Ireland, Portugal and Spain before the crisis
  • Italy poses a systemic threat to the European banking system
  • The elaborate inter-linkages among European banks mean huge indirect exposure to Italy
05 Jun 2018

Daily Note: EM conflict crises and contagion

  • Unilateral US action threatens global trading order
  • Brazil is following Turkey into economic crisis
  • Contagion fear as investors look for next casualty
31 May 2018

Macro Picture: USD-Ominoes

US monetary tightening is widening global risk premiums, affecting a wide range of asset prices – tech stocks, EM borrowing costs and even European periphery bonds. The US dollar has also strengthened recently, a move which – if it went further – could have important implications for global financial markets.

17 Apr 2018

Trade War What To Watch For

  • A NAFTA deal will confirm US commitment to negotiation
  • China has red lines but will compromise on the deficit
  • Volatility is high, but Trade War risk premium will decline
17 Apr 2018

The Cycle That Keeps Giving

  • Welcome to the second longest economic expansion in modern history
  • Talk of ‘high pressure’ monetary policy echoes the late 1960s
  • But allowing the economy to ‘run hot’ is relatively low risk today
17 Apr 2018

Is The Next Lehman Japanese

  • European banks played a decisive role in the subprime crisis 
  • Japanese banks may have taken over as the main systemic vulnerability
  • Japanese lenders have huge dollar funding needs, like European banks in 2007
  • This leaves them exposed to renewed Eurodollar strains
  • Risk-taking has certainly increased at Japanese banks 
  • But their foreign asset quality is better with still large UST holdings
  • Poor profitability will worsen with UST losses and a dollar rebound
  • But risks of asset fire sales are limited at this point
16 Apr 2018

S&P Not Heavily Overvalued

  • As a measure of over/under valuation, a ratio must revert to mean, long term
  • The 1914-91 'short 20th century' distorted CAPE and price/book ratios down
  • The S&P real value index has 6.6% pa real total return and reverts  to mean
  • The RVI, now 16% overvalued, could get more so before it falls back
16 Jan 2018

The End of Secular Stagnation

  • Consensus is raising its GDP forecasts, real rates are rising 
  • Still plenty of bears worrying about sustainability of this revival 
  • Too soon to declare end of ‘secular stagnation’ but recovery looks sound  
11 Jan 2018

Debt Crisis on The Cards

  • The nature of China’s debt makes a systemic crisis unlikely 
  • The crux of the debt burden issue lies in the Party-State balance sheet  
  • The debt-to-GDP ratio will increase but no Minsky Moment triggers are currently in sight  
  • Closing the gap between credit growth and nominal GDP and deleveraging by stealth are the keys to long-term stabilization of the debt 
  • Defaults have been more widespread than generally thought 
  • The real threat is posed by the housing market, policy missteps and deflation 
11 Jan 2018

Is The Consensus Wrong?

The consensus expects a dull 2018, with solid global growth, a modest pickup in inflation and gradual monetary tightening. We look for risks. China is the clearest threat to the global cycle, though a G7 inflation surprise is likelier. Market-based risks (yields, USD shortage) seem more imminent than macroeconomic dangers. 



13 Jan 2020

India: Trade union risk to privatizations

  • The government's determination to push privatization and labour law reforms is provoking a strong trade union reaction that will continue into 2020
  • The government should eventually prevail, but trade unions and opposition parties could impede and delay key privatizations, making projected revenues in FY20 and FY21 seem optimistic
  • Internal opposition from Hindu nationalist trade unions could contribute to the toning down of the more ambitious labour law changes
  • There is some risk that trade unions could join forces with the student-led protests to generate a broader movement, but we believe it is more likely they will maintain a narrow focus on opposing reforms
08 Jan 2020

Global Political Drivers: Look to Iraq

  • The key to understanding the ‘Soleimani crisis’ – both causes and consequences – lies in Iraq.
  • Although the US and Iran have remained locked in tense confrontation since 2018, the driver here is not these two antagonists’ strategies but the recent breakdown of the Iraqi political system.
  • The risk of a third Gulf War hinges on Iraq becoming an unavoidable battlefield as a result of that country descending further into chaos.
  • For in that event, the US and Iran would be dragged into conflict even if, as may be the case, their present conscious intention is to avoid war.
  • Conflict on Iraqi territory would be a wildfire that could set the Middle East ablaze.
  • No plausible Iranian retaliatory action in other theatres would have the same potential to trigger an oil price shock strong enough to hit the global economy and financial markets.
  • This conclusion assumes – and here is our one other confident prediction alongside our core judgment about Iraq as the decisive theatre – that Iran will not try to close the Hormuz strait.
  • The possible positive case for Iraq would see patriotic leaders stabilizing the country: if so, the present crisis would recede.
  • It is not yet possible to predict which way Iraq will go with any degree of confidence: but the global market-negative possibility of the country collapsing seems no mere tail risk.
07 Jan 2020

Russia: US-Iran bystander risk: Russia

  • Likely further US casualties caused by Iran - bad for Russian assets . . .
  • . . . as this will lower the political bar to new US sanctions against Russia
  • Stellar Russian market performance is otherwise well based
12 Dec 2019

Global Political Drivers: US-China truce is not peace

  • The powerful market driver of the US-China ‘trade war’ is underpinned by political drivers that are short-term positive and long-term negative.
  • Trump’s re-election campaign underlies the bullish short-term outlook on a ‘Phase 1’ trade deal.
  • Clinching any such deal won’t stop Trump’s habit of blowing hot and cold on China, causing market volatility: but that is not the main, or even the real, reason for viewing the US-China rivalry as a long-term negative factor for the global economy and markets.
  • That reason is not mysterious: since Trump launched his trade war in the spring of 2018, its geopolitical foundation has been clearly visible. This, in turn, has removed Trump-dependency – with the entire US political class rallying to the cause of the global struggle for mastery against China.
  • To the counter-argument that the geopolitical agenda could easily be dropped if expedient (with US public opinion still relatively malleable in this area), we would reply that the intractable ‘tech’ war will, on the contrary, entrench an adversarial approach to China.
  • The new development that we highlight in this note is the formalization of this approach in the US alliance system – as seen in last week’s NATO Summit.
  • This ‘alliance contagion’ sows dissensions that, in turn, will intensify the negative driver: this applies particularly to America’s Asian allies – now on the receiving end of a Chinese charm offensive.
  • As for the timing of this driver, next year’s US election looks pivotal.
04 Oct 2019

Global Political Drivers: Left turn - US/UK cases

  • The leftward shift of the political pendulum matches the macro policy supercycle
  • This is ominous for asset prices, with equities the most vulnerable asset class
  • It is therefore time to inspect the policy proposals of plausible left-wing challengers
  • Conspicuous policy architects are Elizabeth Warren in the US and John McDonnell in the UK
  • Their proposals fall into two distinct categories: redistribution and the supply side
  • Warren leans more to the former, which seems relatively less unfavourable for equities
  • The greater threat from McDonnell’s ideological bias will be blunted in practice
04 Oct 2019

Brazil: Pension reform enters the home stretch

  • The government’s lack of a solid base in the Senate resulted in another 9% reduction in savings from the pension reform
  • The Senate now needs to deliver significant savings from the second pension reform bill, which aims to include state and municipal workers
  • But there is a risk that the second pension reform bill could further water down the reform, rather than boost the long-term savings
  • While the August primary deficit result was better than expected, the fiscal outlook remains weak as mandatory expenses keep rising
  • Despite some advances, other reforms remain largely on hold until after the final pension reform vote in the Senate later this month
04 Oct 2019

EMEA: No relief for Saudi Arabia

  • Between Houthi attacks and Iranian intrigue, MBS is under huge pressure to respond.
  • The war in Yemen will intensify, while Iran prepares to strike at random intervals in different ways and places.
  • Some welcome rebalancing in the domestic economy remains dependent on fiscal expansion.
  • MBS is going to need new capital to spend: investors should be wary of any Aramco share offering and other such funding rounds.
  • On equity portfolio strategy, rotate into real estate.
02 Oct 2019

Russia: Donbas driver flashing green

  • A breakthrough yesterday shows that Zelensky has what it takes to settle the Donbas conflict
  • But the time window is narrow, as domestic resistance stirs
  • The road to success lies through a package deal at a Summit in a month’s time
  • This is challenging but realistic, given the clear political will on both sides
  • Progress would trigger market rallies, especially Russian equities
02 Aug 2019

Russia: Fiscal driver for rates

  • Orthodox policy is replenishing the fiscal buffer (‘NWF’) – this week to overflow point
  • With growth faltering, the government thinks of using the NWF as a stimulus
  • The CBR says – “stop: if you do that, we will tighten monetary policy”
  • Why so severe? Because a NWF-funded demand boost would eviscerate the fiscal rule
  • The CBR line will prevail here, but its victory won’t be fully evident until 2021
  • Meanwhile, expect easing to remain cautious: policy rate at least 250bp above core inflation
26 Jul 2019

Global Political Drivers: Abe & Johnson - Trump pupils

  • The Japan-South Korea spat is a striking development
  • Politically motivated sanctions tend to matter for global asset allocation only when the sanctions are American
  • No longer: this form of global political risk is proliferating
  • The contagion is coming from Trump - both his policies and his style
  • Shinzo Abe and Boris Johnson are taking leaves from the Trump playbook
17 Jul 2019

LatAm: Pemex's post-Urzua blues

  • One week after Finance Minister Urzúa's surprise exit, Pemex’s 2019-23 business plan continues to stoke growing investor concerns
  • The continuing triumph of AMLO's nationalistic energy team over the moderates suggests that ratings downgrades are on the way
  • The advance of controversial legislative bills for Pemex among other issues has also fed worries
  • As Q2 indicators continue to falter, fears of a technical recession are on the rise; but so too are rate cut hopes despite likely FX volatility
15 Jul 2019

Brazil: Pension reform: The path ahead

  • Strong support for the pension reform in last week’s first floor vote in the Lower House points to a relatively smooth path ahead in the Senate
  • The Senate plans to present an alternative bill that will include state and municipal government employees in the reform
  • Despite the failure to complete the second vote on the pension reform in the Lower House, Banco Central is still likely to cut rates this month
  • Now that the pension reform hurdle has almost been cleared, the economy will be the main risk to monitor
08 Jul 2019

EM Watch: Asset Allocation + Chart Pack

  • Strategy: Asset Allocation summary
  • China: Weaponizing interdependence
  • Brazil: Resilient trade balance despite tensions
  • India: Thumbs down to the budget
  • Russia: Faster rate cuts signalled
  • Mexico: Consumer demand stays sluggish
  • Malaysia: Trade data point to better growth
  • Turkey: Rate cuts coming after CBRT firing
  • Strategy: Close Indonesia equities, Mexico credit
  • Monthly EM slide deck: EM in Charts
08 Jul 2019

India: Budget in charts: Fiscal targets are questionable

  • A lower-than-expected headline fiscal deficit is surprising, especially as the revenue targets appear overly optimistic and welfare spending has been significantly increased.
  • Equity investors sold off after the budget partly owing to higher proposed taxes for foreign portfolio investors, but bond yields fell to a two-year low following the government’s plan to issue India’s first sovereign bond overseas.
  • A record disinvestment aim will depend heavily on Air India’s privatization.
  • The budget is also relying on a larger RBI dividend even as the exit of another top central banker raises fresh worries about the RBI’s independence.
  • Another policy rate cut is likely in August, which will lower the repo rate by a cumulative 100 bps in 2019.
01 Jul 2019

Global Political Drivers: Central Bank Dethroning

  • Trump has broken the taboo of modern central banking
  • This is a harbinger of wider politically-driven changes to central banks
  • The politically turbulent UK looks like a prime guinea pig candidate
  • Either a Labour or a hard Brexit government could politicize the BoE
21 Jun 2019

Global Political Drivers: Gulf tanker war and oil shock

  • The incentives of the belligerents in the new Gulf stand-off ensure continued provocations; and escalation from here would take the form of a much more serious tanker war than its 1980s predecessor.
  • The effects of this situation will not be limited to fleeting oil price spikes: the threat of such a war will inject a premium into the oil curve.
  • Even were Iran to balk at escalation in response to any air strikes by the US or its allies, the pattern of deniable provocations would resume.
  • This spells an upward oil price spiral which, in the event of an all-out tanker war, would spike well above $100/bbl for a few weeks before retreating to still elevated levels, driving up inflation and yields.
12 Jun 2019

Mexico: The race to meet Trump's demands

  • The AMLO government faces an initial 45-day deadline to slash migrant inflows or 'additional measures' will be required
  • In a big shift, it has agreed to act as Trump's 'wall', but success is not guaranteed
  • This will likely add to increasingly unsustainable fiscal pressures longer term
06 Jun 2019

Brazil: Slow progress in the congress

  • The government has scored some important victories in the legislature this week, as tensions eased between Bolsonaro and the Congress
  • The government’s lack of a base – and its apparent lack of interest in building one – means that it will have to fight to approve every bill
  • The rapporteur of the pension reform will release his draft bill by next week, but the government still lacks the votes needed for its approval
  • It is increasingly likely that state and municipal workers will be included in the reform after 25 governors showed public support for the reform
03 May 2019

Global Political Drivers: Regime change in the air

  • US grudge matches – focused now on Iran and Venezuela – feed a global investment theme
  • It’s not so much the oil price; and conflict tail risk is irrelevant to markets
  • The main driver instead is intensifying US financial sanctions
  • Counter-measures by China and Russia accentuate economic fragmentation
  • Diminishing returns to US sanctions will increase the risk of financial shocks

05 Apr 2019

Russia: Labour fix

  • The CBR thinks that the NAIRU has been reached, but it still signals rate cuts. There is a more fundamental resolution to this apparent paradox than present favourable inflation trends – underlined by the March print just out..
  • The key is active labour market policies aimed at redistributing labour now inefficiently hoarded in the public sector.
  • This policy promises sweeping benefits: increased productivity in the public sector, more defensible corporate profit margins with top lines meanwhile supported by sustainable domestic demand growth.
  • A rate cut is coming no later than June.

04 Apr 2019

Global Political Drivers: Key man risk

  • Events in Kazakhstan prompt a fresh look at China stability risk
  • Nazarbayev’s personalized rule is Xi Jinping’s direction of travel
  • Succession risk therefore takes centre stage, with Russia next in line
  • But a botched succession in China would be a global risk-off moment
  • Mitigating personalised regime risk comes down to personalities
  • This makes Xi look like the world’s main key man risk
04 Apr 2019

Brazil: Tenuous truce

  • Bolsonaro and Lower House Speaker Maia reached a deal to salvage the pension reform after tensions reached a boiling point last week
  • While Bolsonaro will support the reform more vocally, Economy Minister Paulo Guedes will actively negotiate with the Congress
  • Bolsonaro also agreed to meet with party leaders, but other changes to his political team are needed for the reform to gain traction
  • Following today’s committee hearing, it is likely that changes to rural pensions and to disability payments for the elderly will be eliminated from the reform 
29 Mar 2019

LatAm: Mexico: Legislative pushback, NAFTA 2.0

  • Ongoing resistance to proposed constitutional changes is a positive sign that the seemingly all-powerful AMLO cannot always get his way
  • After sailing past the Lower House, the nationwide referendum bill faces an irate Senate opposition bloc, raising the odds that the text will be modified
  • A mild education counter-reform proposal has also run into obstacles – this time from AMLO’s base; how the government responds will be a key test ahead
  • Legislative delays have stalled progress on the labour bill, adding to doubts in the US about Mexico’s ability to meet its NAFTA 2.0 commitments
  • Dwindling odds of NAFTA 2.0 ratification in the US Congress this year will raise risk perceptions for Mexican asset prices and feed uncertainty
21 Mar 2019

Global Political Drivers: No-Deal Brexit: Rogue May risk

  • Fears of a globally significant no-deal Brexit shock next week are misplaced
  • This is not a complacent conclusion: it survives stress testing of a rogue UK prime minister
  • More justified fears would focus beyond the end of the month, as relentless political battles remain in store
12 Mar 2019

LatAm: Mexico: Highs and lows at AMLO’s 100-day mark

  • The government’s approval rating and consumer confidence levels have sizzled to record highs in recent history, while inflation is finally ebbing
  • But the latest economic indicators remain weak in the auto sector, job creation, retail sales, investment and productivity
  • A new Senate bill to trim select bank fees could soon move ahead, while the Lower House is pushing ahead with a bill on nationwide referendums
  • Labour tensions are simmering at Mexico’s largest retailer, with a possible strike on the way
  • Pemex remains on the hot seat despite the Finance Ministry’s vow of a new fiscal aid package


07 Mar 2019

Global Political Drivers: Costly struggle for mastery

  • Trump’s prospective trade war “victory” will be a mere respite
  • The underlying driver of geopolitical rivalry with China – and Russia – will see to that
  • Washington has settled on an eternal ‘Eurasian’ rationale
  • This spells vicious zero sum attrition with constant economic spill-overs
  • The first lasting effect of a concentrated Asian trading bloc co-exists with conflict risk
06 Mar 2019

India: Modi to capitalise on conflict risk

  • Tensions could re-escalate in case of another terror attack with Modi committed to a strong retaliatory stance.
  • A nationalist outpouring following the attacks may have halted a year long slide in support for the ruling Bharatiya Janata Party (BJP).
  • The government narrative of decisive leadership just received a boost versus the opposition narrative of economic distress.
  • The BJP's strengths in resources, organisation and campaigning place the party at an advantage in the short term.


27 Feb 2019

Russia: Austerity cushions

  • The risk of the public’s patience snapping and the derailment of the present policy framework is being addressed by a new approach to social policy.
  • This involves much more disciplined targeting of transfers and benefits at the most sensitive groups – both socially (i.e. the poorest groups), and politically, as exemplified by the focus on non-working pensioners.
  • The risk from disaffected youth is lower than may seem, with repression in the form of internet content controls being part of the policy response.
  • The fiscal price of latest measures is a manageable 0.17% of GDP, but the groundwork is already being laid for a more material fiscal loosening ahead of the important political test of the Duma election in 2021.
  • The overall approach will “work” – but at an economic cost which is linked to the relative losers of the re-distribution strategy being the ‘productive middle’.
  • Aside from this overall cost, specific policies associated with this political insurance premium point to some enhanced investment opportunities such as private healthcare.
08 Feb 2019

Global Political Drivers: Trump The Predictable

  • Core Trump agenda items can go onto the backburner, but they always come back
  • This week’s State of the Union accordingly revived some 2016 stump staples
  • The track record shows a pattern hinging on inflexion points – such as the present China trade war endgame
  • This points to a revival of Trump’s campaign against the European version of “unfair trade”, focused on German cars
  • Another itch that will return is Russia
04 Feb 2019

India: Budget in charts - Populism wins over fiscal discipline

  • Higher spending and ambitious revenue projections will constrain fiscal discipline.
  • Creative accounting with off-budget items understates fiscal slippage.
  • Populist measures such as farm income support will lock the next government into similar policies.
  • Possible monetary easing amid looser fiscal policies risks medium-term macroeconomic instability.
04 Feb 2019

Brazil: Fireworks in the senate

  • In a big yet bruising victory for the Bolsonaro government, its candidate has won the race for Senate president – but at what price?
  • Lower House Speaker Maia’s re-election is positive for the reform agenda
  • Yet Maia too has thrown some cold water on the Economy Ministry’s pension reform hopes
  • In a blow to the President, his son Flávio got some bad news from a top court justice
  • Despite an improved 2018 primary deficit, more states are in fiscal trouble and key economic indicators remain weak
24 Jan 2019

Global Political Drivers: UK Crisis: Hot politics, cool markets

  • The UK political crisis is about to get even hotter
  • But ‘all for what?’ as most outcomes point to further chronic uncertainty
  • The only two exceptions are a vanishingly unlikely ‘no deal’ or the still very remote chance of another referendum won by ‘Remain’
  • So there is scant basis for decisive market moves, with sterling likely to settle back into its ‘Brexit uncertainty’ range
11 Jan 2019

Global Political Drivers: European fight club

  • The Eurozone has turned twenty but far from grown up
  • The Italy-Germany combo ensures chronic crises, now with political fuel
  • That fuel will be distilled by this year’s European parliament election
  • The politics will allow ECB to supply palliatives – but not fundamental cures
  • Such resolution will only follow games of chicken, causing intense market turbulence
11 Jan 2019

LatAm: Mexico: New year, new fuel crisis

  • The fuel distribution shortage in Mexico’s central region and the capital continues to worsen as traders and local businesses warn of growing potential shocks
  • Pemex is belatedly working to normalize supplies, but if the crisis drags into next week, the economy will likely take a real hit
  • As consumer confidence has soared to a 12-year high, the Finance Ministry this week unveiled more market-friendly initiatives in the hopes of reviving business confidence
11 Jan 2019

China Watch: Trade war fallout: Deflation amid emergence of Asia trading bloc

  • China’s US exports to fall markedly in Q1/19
  • Deflationary pressures building in China’s domestic economy
  • Emergence of Asia trading bloc is getting underway
11 Jan 2019

Brazil: Pension reform takes shape

  • Growing popular support for reforming the pension system will aid approval of the reform
  • Economy Minister Guedes appears to be winning the battle for a more ambitious pension reform, but Bolsonaro will have the final word
  • Another good sign for reform is growing support for the re-election of Lower House Speaker Maia, but the Senate presidency remains a risk
  • A further risk is posed by Bolsonaro’s top political coordinators, who do not support a robust reform
11 Dec 2018

EMEA: Junta incorporated

  • Post-Arab Spring, military power is growing across the MENA region – economically as well as politically.
  • In Egypt 10-20% of GDP has fallen under military control, making the military the country’s largest “company”.
  • Other countries in the region are heading down the same road – most importantly, Saudi Arabia.
04 Dec 2018

Brazil: GDP data highlights long road to recovery

  • The Brazilian economy continued to underperform in Q3/18, expanding by just 0.8% qoq/sa
  • But the outlook for 2019 has brightened, as the end of election-related uncertainty has helped to boost key indicators
  • Strong October tax collection data confirms that the 2018 primary deficit will be smaller than the yearend target, but the longer-term fiscal outlook remains bleak 
  • President-elect Bolsonaro will meet with key party leaders this week but faces potential bad news if up to 15 parties form a united front, isolating his PSL party
  • Brazilian farmers are vigilantly monitoring the US-China trade talks as they prepare to harvest Brazil’s largest soy crop in history
29 Nov 2018

India: On the road: Polls signal swing against Modi BJP

  • The risk of a big BJP defeat in key state polls now under way has increased.
  • The opposition will gain momentum to form a united front against the BJP.
  • Such a result will spook investors counting on Modi’s re-election next year.
09 Nov 2018

Global Political Drivers: US vs China shifts to simmer

  • This week’s US election points to continued trade war with China
  • Trump’s random trade-war walk will come out on a more gentle pace of tariff escalation
  • Political and economic incentives for slower motion are reinforced by the interplay of parallel US agendas
  • Less RMB depreciation may now be needed
09 Nov 2018

Global Political Drivers:US vs China shifts to simmer

  • This week’s US election points to continued trade war with China
  • Trump’s random trade-war walk will come out on a more gentle pace of tariff escalation
  • Political and economic incentives for slower motion are reinforced by the interplay of parallel US agendas
  • Less RMB depreciation may now be needed
29 Oct 2018

Daily Note: Brazil: Election opens door for further reform

  • Far-right candidate Jair Bolsonaro wins runoff by a solid margin 
  • Bolsonaro must push an ambitious reform agenda – notably pension and tax reforms, plus privatizations – to put the economy back on track
  • He is likely to benefit from stronger growth and revenues in 2019
26 Oct 2018

Global Political Drivers: Italy and the French white knight

  • The Italy threat is back: the ‘global’ and ‘political’ components of the threat are alive and well
  • Next up: a game of chicken between Italy and the EA establishment
  • Macron’s ride to the rescue has run into German political sands
  • He might have better luck installing his man at the ECB
  • Draghi is set to tee up an Italy-focused TLTRO for his successor
25 Oct 2018

Russia: Supply-side drive

  • Russian economic policy is strongly biased to the supply side at the expense of domestic consumption
  • This cardinal feature applies across the board and in all time horizons
  • Two key policies exemplify this: pension investment plans and the champion fiscal rule innovation on the exchange rate (‘FXFR’)
  • Political risks to this agenda stem from already visible public disenchantment
  • These policy settings, while they last, are good news for the domestic DCM as well as all tradable and infrastructure-related sectors
10 Oct 2018

LatAm: Did Mexico lose or win with the new trilateral deal?

  • The new trilateral deal set to replace NAFTA does not significantly address the core issues for which the deal was renegotiated: the erosion of US manufacturing jobs and the US trade deficit with Mexico.
  • At the micro level, the new guidelines reduce the competitiveness of the automotive industry but provide safeguards against potential trade tariffs in this sector.
  • At the macro level, the end of a forced renegotiation reduces trade uncertainty, improves business sentiment and lifts the country’s outlook.
  • The next challenge is to have the new deal approved by the Canadian parliament and the US Congress – the Mexican Senate has already expressed its willingness to ratify it.
  • Overall, the final deal makes Mexico and North America somewhat more protectionist and fulfils the aspirations of some stakeholders to “turn this hemisphere into a manufacturing powerhouse”.
08 Oct 2018

Brazil: Bolsonaro wave reshapes electoral map

  • Following Sunday’s ballot, far-right frontrunner Jair Bolsonaro will have the upper hand against leftist Fernando Haddad (PT) in a runoff round
  • Bolsonaro’s once-tiny PSL party also saw big advances in the Congress, aided by a surge in anti-PT sentiment
  • But a highly fragmented Congress after historic legislative election results will make passing structural reforms challenging
  • Key losses for the PT will likely force Haddad to the centre, but he still faces an uphill battle, boosting investor sentiment
04 Oct 2018

India: Higher oil, tighter norms to exacerbate credit crunch

  • The government’s extraordinary takeover on 1 October of the Infrastructure Leasing & Financial Services (IL&FS) board stems the risk of contagion as it will ensure the lender has adequate liquidity to avert further defaults.
  • But liquidity will remain tight due to rising interest rates, a weakening rupee and growing investor risk aversion, resulting in funding challenges for non-banking finance companies (NBFCs).
  • The rupee’s fall to fresh lows, as we expected, will keep markets jittery about the impact of high oil prices on India’s twin deficits and inflation; the government today cut fuel taxes, as we had predicted, and this will result in fiscal slippage.
  • The Reserve Bank of India (RBI) will feel compelled to tighten monetary policy; we expect a 25 bp rate hike tomorrow.
  • The oil price impact and IL&FS’s troubles are a one-two punch for India’s already battered financial sector.
  • No major lender will be allowed to fail, but regulations will be tightened further to tackle deep-set structural faults in the sector.
  • This will delay India’s investment revival and ultimately impinge on consumption demand as well.
27 Sep 2018

Global Political Drivers: Peak Brexit panic timelines

  • The UK will not ‘crash out’ of the EU next March despite much turbulence in the meantime
  • This outlook points to attractive event trading opportunities in sterling and gilts
  • On the timing-is-everything principle, we scrutinize the key event calendar
  • Volatility will surge in the run-up to two main winter milestones, followed by relief rallies
  • The same goes for the full-blown UK political crisis scenario
  • We recommend expressing these views through the EUR/GBP cross, with prompt profit taking
14 Sep 2018

Brazil: Tackling the ticking fiscal time bomb: Candidate plans

  • Investors are likely to have little patience with Brazil at a time of rising global risk
  • Yet the next leader will have to tackle not one but three looming fiscal challenges in 2019
  • If the next President does not signal a strong reform agenda up front, more market volatility is likely to ensue
  • Near-term fiscal erosion is likely to increase as the inevitable price of legislative horse-trading
  • We map the key fiscal proposals of core presidential candidates in this note, as well as Brazil’s short political timeline for reforms in the next government
13 Sep 2018

Russia: Economic effects of sanctions

  • Our model of the ruble-oil price correlation indicates that sanctions pressure – with help from wider EM risk-off – has caused a 27% deviation from the ‘natural’ level for USDRUR.
  • This effect – reflected in an all-time high ruble oil price and reinforced by the imminent VAT hike – is boosting external demand, while domestic demand growth will flag.
  • The strategic policy framework makes domestic investment demand a potential exception to this rule; but this effect will not be felt before H2/19.
  • While not boosting domestic demand, fiscal and monetary policy will avoid weakening it further: specifically, the CBR will leave its policy rate unchanged tomorrow.
  • The surging current account and budget surpluses will cushion the effect of outflows from the local debt market, while in equities, materials (metals & mining and chemicals) should catch up with outperforming oil stocks in this sanctions-driven economic environment.
24 Aug 2018

India: Political competition adds to economic risk

  • Two national opinion polls held in May and July 2018, respectively, show a narrowing of the vote gap between the Bharatiya Janata Party (BJP)-led coalition and the Indian National Congress (INC)-led alliance; voters’ economic concerns are eating into Modi’s lead.
  • Both surveys show that an expanded opposition alliance that includes more regional parties could produce a hung parliament, which would be negative for market sentiment because of the subsequent uncertainty.
  • Political competition is contributing to increased populism in an increasingly inflationary environment, making a hard landing for the economy after the elections more likely.
  • The BJP has an advantage in resources, messaging and organization, which in our central case should push it over the finish line in a close election; but economic factors are increasingly weighing against it.
17 Aug 2018

Global Political Drivers: Trade war: radical invisibility

  • Trade wars – now China-focused – are a random US political walk
  • Looking beyond the mid-terms, this is far from a one-way bet
  • Structural constraints on Trump – from voters, official and Congress – are minimal
  • His reticence on the decisive geopolitical agenda accentuates uncertainty
  • The newsflow is a poor source of clues about Trump’s on-off switch
08 Aug 2018

EMEA: Turkey crash landing

US sanctions have come just as Turkey’s overheating situation reaches a crunch point. Here we assess the outlook for what could be Turkey’s worst economic crisis since 2001.

  • New sanctions are not likely in the short-term.
  • However going into mid-Q4 there is a real risk of US banking sanctions if the Turkish government does not back down.
  • With or without new sanctions though, Turkey is heading into crisis.
  • Talk of capital controls and IMF intervention is going too far, but a very hard landing is now unavoidable.
  • ​We maintain a negative outlook on all Turkish asset classes.
07 Aug 2018

Brazil: The electoral chessboard, unveiled

  • With the end of the party conventions, the full list of candidates – and VP running mates – for the wide-open October presidential race has finally firmed up
  • Notwithstanding ardent voter hopes of change, the biggest winners of the convention talks were Brazil’s two dominant parties of yore: the PSDB and the PT
  • Former President Lula’s PT has inched closer to the runoff round after enacting Phase 1 of its Plan B and isolating leftist rival Ciro Gomes as a result
  • Market-friendly Geraldo Alckmin (PSDB) has selected a female, conservative senator as his VP pick, in a tactical move to win back the south and rural voters
  • After forming last-minute alliances, both former Environment Minister Marina Silva and Paraná Senator Álvaro Dias have managed to keep their bids alive
  • Unable to branch out, far-right Jair Bolsonaro picked a right-wing general as his VP choice, limiting his ability to woo undecided voters but firing up his core base
  • Industrial production recovered in June but unemployment remains a concern
02 Aug 2018

China Watch: Why China will not surrender

  • The trade war is not the top priority for Beijing 
  • The reaction to tariffs will be asymmetrical 
  • Beijing will defend the domestic power structure while pursuing global aims 
05 Jul 2018

Global Political Drivers: Brexit rough passage to safety

  • Amid the Brexit noise crescendo, we stick to our sanguine view: ‘crash-out’ risk is negligible
  • Recent action has usefully demonstrated the ‘parliamentary arithmetic’ underpinning this call
  • The UK government’s manoeuvrings also provide useful pointers for stress testing our view
  • Noise is not just inevitable but intrinsic to the Brexit process, since brinkmanship is a political self-preservation strategy
  • ​Lean into likely EURGBP surges as this season heads to its winter finale
08 Jun 2018

Brazil: Bolsonaro surfs the anti-establishment tidal wave

  • In a new investor survey by XP Investimentos, nearly half of those polled now see Bolsonaro winning the ballot, casting doubt on Brazil’s economic future.
  • The recent use of WhatsApp as a powerful tool to mobilize truckers points to its huge potential to influence voter behaviour; it may also mitigate Bolsonaro’s lack of TV/radio ad time.
  • Market-friendly, former São Paulo Governor Alckmin not only trails in fourth place in a new presidential poll but is tied with an alternate candidate from Lula’s Workers’ Party, underscoring his ongoing woes.
  • Alckmin is also tied with his former protégé-turned-rival, former São Paulo Mayor João Doria, who is now unlikely to replace him on the ballot.
  • The truckers’ strike – the latest manifestation of the widespread popular outrage that has been evident since 2013 – highlights the deepening crisis of governability in Brasilia today.
  • That crisis is unlikely to be fully resolved by the October election, adding to the fiscal headaches for the next President.
07 Jun 2018

Global Political Driver: Trump trade wars friendly fire

  • Trade disputes between transatlantic friends may seem less scary than with rising rival China
  • Such appearances are deceptive: historic geopolitical alignment paradoxically reinforces the attractions of Europe as a Trump trade war target
  • Those attractions range from domestic US politics to the ‘German cars’ question, with the geopolitical kicker being to prolong the row
  • This protracted prospect in turn aggravates the negative economic and financial market effects of inhibited capex and dollar strength
31 May 2018

India: Rural revival at a fiscal cost

One of the first steps that the Bharatiya Janata Party took after assuming office in the southern state of Karnataka earlier in May was to waive farm loans up to Rs100,000 (US$1,500) each. The state government that introduced this measure lasted only two days, but its successor is under pressure to continue with the estimated Rs530 billion write-off. All parties are wooing the rural voter in the run-up to India’s 2019 general elections. Below we examine how India’s troubled rural economy will shape the economics and politics of the country in the next 12 months.

03 May 2018

Saudi Arabia: The Kingdom to come

Over the last 12 months we have closely followed Muhammad bin Salman’s relaunch of his Kingdom. In this note we join up the findings of the past year of research to answer the question: what will the new Saudi Arabia look like?

17 Apr 2018

Winning the Trade War

  • Global: EM gain on limited US trade choices 
  • China: Fiscal policy will be contractionary 
  • Brazil: Presidential door open for a novice 
  • India: Tax compliance push will boost GST 
  • Russia: Tax change to reverse capital flight 
  • Mexico: NAFTA will survive despite Trump 
  • Philippines: BSP will allow peso to weaken 
13 Apr 2018

Brazil: More Light on The Presidential Race

At the six-month mark to the October general election, important parameters have been set on what is still shaping up to be Brazil’s most unpredictable presidential race in three decades. In the wake of the high-profile imprisonment of former President Lula – the country’s current presidential frontrunner – fragmentation remains the rule of the game: myriad dark horse candidates across the political spectrum have entered the race in the absence of strong consensus centrist candidates. Another trend is the growing anti-establishment movement, with new players eager to surf the wave of rising popular anger. Over the next three months, political parties will begin to forge electoral alliances with an eye to aggregating more free, mandatory TV/radio electoral ad time for their candidates; such alliances will be key to monitor.

10 Apr 2018

Russia: Smooth Growth, Tripwire Hazard

  • But for the ‘minor detail’ of geopolitics, Russian growth is on course to speed up to 2% this year
  • Recent softer data are misleading
  • Exemplary macroeconomic policies are supporting all growth components
  • Homebuilding and consumer durable are likely sweet spots
  • This healthy baseline outlook will either be ruined or re-assert itself depending on how the latest spiral of Russia-West geopolitical confrontation plays out
25 Jan 2018

Growth Recovery at Expense of Macroeconomic Stability

Widening twin deficits and rising inflation are fast emerging as risks to India’s macroeconomic stability that will threaten the nascent growth revival.  

25 Jan 2018

Lula Thwarted: Electoral Implications

  • The unanimous appeals ruling against Lula means that the market’s top electoral concern has been allayed, favouring bulls despite reform gridlock. 
  • The ruling does not bar Lula from registering for the presidential race, but it does significantly raise the odds that he will be found ineligible to run. 
  • Lula’s expected removal from the race will help less-polarizing candidates; the biggest risk to monitor ahead is the fragmentation of the centrist vote. 
  • Public reaction to the verdict was relatively muted, underscoring the former leader’s fall from grace in the wake of the corruption investigations and despite his current presidential frontrunner status. 
24 Jan 2018

Xi's Global Gauntlet

  • Xi Jinping feels confident of being able to confront the Trump administration in seeking global influence 
  • Beijing will do all it can to promote its political and economic model as an alternative to “failing” democratic capitalism 
  • The outlook is for heightened China-US tension as the Trump administration sharpens policy towards the PRC 
18 Jan 2018

US Versus China and Russia

  • America’s new National Security Strategy published last month – and echoed by this week’s National Defence Strategy from the Pentagon – crystallizes the global geopolitical backdrop of structural great power tension.  
  • Any isolationism implied by Trump’s ‘America First’ stance is sifted out by the stern realism of the military men at the top of  his administration and the result is an agenda of continuous, comprehensive and – above all – zero sum competition against China and Russia.  
  • Another contrast with the Cold War is, however, negative: confrontation with the economically isolated Soviet Union spelled none of the day-to-day risks to the global economy and trade posed by the prospect of periodically rising US-China tensions. 
16 Jan 2018

Saudi and Iran: The 'Hot War' Case

  • Rivalry between Saudi Arabia and Iran is going to intensify in 2018. The war in Yemen presents a particular risk.
  • This rivalry will give a tailwind to oil prices, but does not have real capacity to constrict supply.
  • It could instead bring about the end of the OPEC+ consensus and the return of global supply glut.


17 Jan 2020

Asset Allocation: Recovery underway

  • Global outlook improves as activity bottoms out and growth stabilises
  • More countries are now at the Recovery stage of the cycle than in Slowdown
  • This is the most favourable phase for risk asset performance
  • However, expensive valuations should limit the upside in 2020
  • We stay 11% o/w on equities but rotate more into emerging markets
  • Brazil upgraded to +2, Korea to +1; Germany up to 0, Turkey down to 0
  • CNY up to +1 on trade-deal goodwill; CHF cut to -1, RUB to 0
  • Middle East risks are real but positioning for them is uncompelling
  • We cut EM bonds by 1% and add that to Energy commodities
10 Jan 2020

EM Strategy Monthly: EM growth likely to "trump" geopolitical worries

  • Risk: We raise our call on overall risk to positive to reflect recent improvements in EM growth performance.
  • China: We maintain our positive call on equities, mainly because of recent evidence of growth stabilization.
  • Brazil: Growth is strengthening and low interest rates will push major newfund inflows into equities; we raise our call on equities to strong positive.
  • Turkey: We think Turkish markets are fragile owing to regional geopolitical risks; we cut our call on equities to strong negative
10 Jan 2020

Strategy Chartbook: January 2020

  • Macro Drivers. Evidence of a cyclical recovery, but global trade likely to lag
  • Multi Asset. Markets impervious to Iran tensions, but what if oil prices were to surge?
  • Fixed Income. Central bank QE suggests markets could trade like 2016-18 again
  • Currencies. Reserve managers continue to buy EUR
  • Equities. Stocks vs Oil – a nuanced relationship
  • Commodities. Crude backwardation is not just about Middle East tensions
18 Dec 2019

Macro Strategy: Preparing for 2020 action.. in H2

  • We are bullish risk in the near term, but see clouds on the horizon
  • We buy forward vol in equities and FX to position for 2020 H2 risks
  • Portfolio review of 2019: a strong finish, and we sell more EUR/USD calls
01 Oct 2019

EM Strategy Monthly: Beijing's acceptance of slower growth marks turning point in global cycle

  • Risk: We turn less negative but still think the long list of potential upsets ahead merits a continued negative call on risk.
  • Turkey: We raise our call on equities to positive, which we view as a short-term tactical move owing to the expected sharp fall in inflation in September.
  • Russia: Prospects for further declines in inflation and the key policy rate remain solid; we maintain our positive call on all Russian securities.
  • Brazil: We continue our positive rating on Brazil ahead of the final passage of pension reform and continued easing by Banco Central.
25 Sep 2019

Macro Strategy: Four black swans

  • There are plenty of things to worry about in the current market environment
  • And we reckon investors are getting too worried, desperate to be the first to identify these black swan
  • S&P 500 set for a period of consolidation, but we are not in the recession camp
13 Sep 2019

Asset Allocation: The global slowdown wave

  • China’s 2016 stimulus created a global synchronised growth spurt
  • But the expansion wave has since turned into a global slowdown tsunami
  • Nonetheless, we may be past the nadir in this cycle
  • We add back some risk but remain conservatively positioned
  • We stay underweight equities and overweight bonds, but only by 2%
  • Our preference in equities is for DMs, in fixed income for EMs local currency
  • Bond yields close to fair value relative to cyclical indicators
  • Treasury liquidity tightening likely, but Fed needs to ease monetary policy
  • The dollar still smiles, but China policy remains important: CNY cut to -1
03 Sep 2019

EM Strategy Monthly: China slowdown? Yes, but this time the policy response will be different

  • Risk: We cut our call on risk to negative to reflect the rise in market uncertainties associated with global growth and the trade war.
  • Indonesia: We raise our equity call to positive to reflect continuing relatively strong growth amid improving fiscal performance.
  • Russia: Prospects later this year for a pickup in growth and continuing cuts in policy rates are positive; we maintain our positive call on equities.
  • Brazil: We view equities as oversold given more positive growth prospects and progress on pension and tax reforms. We maintain our positive rating.
01 Aug 2019

EM Strategy Monthly: Trade war to fade as EM driver: All hail monetary easing!

  • Risk: We maintain our positive call on overall risk owing to the dovish tilt of central banks in both DMs and EMs.
  • Turkey: We raise our calls on Turkish assets to short-term positive as the ongoing recession will bring down inflation and rates faster than expected.
  • Russia: We remain positive on Russian assets; despite slowing growth, the easing monetary cycle now under way should buoy valuations.
  • Brazil: Given the prospect of the passage of pension reform, we expect markets to be upbeat, despite ongoing economic stagnation.
31 Jul 2019

Macro Strategy: Too many cuts spoil the broth

  • A 25bp Fed rate cut is likely today with at least one more to come, but this is an “insurance” cycle not the end of the growth story
  • Easing to steepen the yield curve. This means the Fed’s balance sheet policy will probably come into play as well
  • We buy a FFF0-FFF1 steepener, as we reckon expectations of 35bp of cuts next year are excessive
30 Jul 2019

Strategy Chartbook: August 2019

  • Macro Drivers. Strong Q2 for the US domestic consumer, but not for the rest of the world or inflation
  • Multi Asset. US assets are outperforming both DMs and EMs as the Fed prepares to ease
  • Fixed Income. Debt ceiling suspension risks tighter money market liquidity
  • Currencies. GBP discounting bimodal Brexit, SNB remains active
  • Equities. US stocks have benefited from globalisation in recent years: is this about to change?
  • Commodities. Treasury yields under downward pressure from lower commodity prices

12 Jul 2019

Asset Allocation: The first cut is the deepest... or is it?

  • A single 25bp US rate cut won’t be enough to boost growth, capex and inflation
  • But whether the Fed cuts 50bp in July or in two steps is not too important
  • What matters is that the trade war truce slims the downside-risk tail…
  • …while synchronised central bank easing fattens the upside-risk tail
  • We add exposure to equities, HY and EM bonds; cut govvies, IG and cash
  • Yields are too low but likely ECB QE, shortage of HQLA cap their upside
  • We stay positive on EUR as reserve diversification continues
  • In currencies we upgrade CNY, TWD and TRY, downgrade GBP and CAD
10 Jul 2019

Macro Strategy: USD: The ties that bind

  • Dollar is in a stable equilibrium as bullish and bearish factors net out
  • Past strength a fading drag on S&P earnings, but a continued driver of rising imports
  • We expect USD to remain in a range, with a bias to sell on rallies
03 Jul 2019

Macro Strategy: Trump lights EM touchpaper

  • Trump and Xi defer trade war as a market risk
  • Global central bank easing and improving risk appetite measures signal upside for EM assets
  • High real rates and falling inflation make local currency debt stand out; we buy EMLC
02 Jul 2019

EM Strategy Monthly: Trade War truce

  • Risk: We raise our call on overall risk to positive owing to the resumption of US-China trade talks and the pronounced dovish tilt of the Fed and the ECB.
  • China: We raise our call to positive based on expectations the trade talks will boost sentiment and fiscal stimulus will lead to stronger growth in H2/19.
  • Russia: We are still positive on the outlook but cut our call on equities from strong to moderate positive.
  • Brazil: We maintain our positive call on equities given progress on pension reform and prospects of a rate-cutting cycle by Banco Central.
25 Jun 2019

Strategy Chartbook: July 2019

  • Macro Drivers. Trade activity remains subdued, but there are some green shoots in China
  • Multi Asset. Credit cycle still in the ‘slowdown’ stage – but there are signs it may be bottoming out
  • Fixed Income. Market-based and survey-based measures of inflation are collapsing
  • Currencies. Trump has stepped up currency-war rhetoric, but that does not mean USD will fall
  • Equities. ‘Insurance cuts’ by the Fed should support equity valuations, stocks still under-owned
  • Commodities. Gold performs strongly after USD and UST 2y peaks, VIX troughs
12 Jun 2019

Macro Strategy: Rally round rate cuts

  • Market setting up for a prolonged rate-cutting cycle
  • But asset performance depends on duration and magnitude of cuts
  • If the Fed merely takes out insurance, equities and USD are set up to rally later in the year
06 Jun 2019

Macro Strategy: Powell polishes his put

  • After Powell’s remarks, rate markets now discount multiple Fed cuts
  • Equities have rallied, perhaps a sign of investors’ trust in the Powell put
  • But the reaction in the two markets is not entirely consistent
04 Jun 2019

EM Strategy Monthly: Huawei: A bridge too far for Trump's art of the deal

  • Risk: We cut our risk call to moderate negative out of concern about the outlook for the US-China trade talks.
  • Russia: We like Russia’s strong economic fundamentals and limited correlation with other EM markets; we raise our call to strong positive.
  • India: We cut our call to negative owing to slowing growth and new populist initiatives by the new BJP government.
  • Brazil: We raise our call from negative to positive amid cheap valuations and signs that pension reform is beginning to move forward in the Congress.
31 May 2019

Strategy Chartbook: June 2019

  • Macro Drivers. US GDP growth could average 1% over the summer, with more downside risks
  • Multi Asset. First it was rising leverage, now it’s rising vol that’s causing US credit to lag stocks
  • Fixed Income. Real yields crash through support; Treasury to push them lower still
  • Currencies. CNY weakness has further to go
  • Equities. It’s not just the trade war; cyclical macro data also point to lower US equity prices
  • Commodities. Supply glut in oil, supply shortage in soft grains

02 Apr 2019

EM Monthly Strategy: Russia is our top pick to ride out the markets current lack of direction

  • Risk: We maintain our neutral call on EM risk as we think the positive impact of Fed easing is more or less offset by slowing global growth and deflation.
  • Russia: We raise our call to strong positive as we believe the sanctions risk has eased while domestic economic fundamentals remain very strong.
  • India: PM Modi has successfully used the theme of national security to bolster the BJP’s election prospects. We raise our call on equities to positive.
  • Turkey: Erdogan is promising economic reforms but many foreign investors still want to exit Turkey; we raise our call on equities to strong negative.
27 Mar 2019

Macro Strategy: Yield curve: The signal and the noise

  • 3m-10y inversion always precedes a recession
  • S&P sectoral performance tends to switch to safety upon inversion: we go long a safe basket vs short a growth basket
  • We also take profit on our long October fed funds future as market now discounts high chance of a cut this year
26 Mar 2019

Strategy Chartbook: March 2019

  • Macro Drivers. Central bank easing has boosted Chinese activity, but global growth still slowing
  • Multi Asset. The UST yield-stock price divergence makes perfect sense, but can it last?
  • Fixed Income. US yield curve indicating recession risk, but Fed eases Treasury funding needs
  • Currencies. Lack of yield support for USD/JPY; TRY weakness always a risk given external position
  • Equities. Despite weak data, bullish EM investors keep pouring into China, particularly Cyclicals
  • Commodities. China new business supporting copper for now, but size of stimulus will disappoint
15 Mar 2019

Asset Allocation: Global demand shock

  • A sizeable shock to global demand is likely – the US won’t be immune
  • Activity should improve in H2, but less than consensus assumes
  • Markets have chosen to look though bad data – how long will this last?
  • Dovish Fed, US-China deal mostly priced in, leaving little upside potential
  • US stocks cut to 0, China to -1; CNY up to 0 on portfolio inflows, trade deal
  • We further de-risk our portfolio, cutting EM equities and commodities
  • We rotate from cash to bonds to reduce our duration underweight
  • Main risk to our cautious view: US and China roll back existing tariffs
05 Mar 2019

Strategy Chartbook: March 2019 Chartbook

  • Macro Drivers. Negative trade growth and inventory overhang spells further growth slowdown
  • Multi Asset. Low volatility may not last too long, especially in rates, credit and EM equities
  • Fixed Income. Foreigners sold $90bn of US govt bonds in Q4, the highest pace of sales since 2016
  • Currencies. USD is rich and the market is long, but it is more likely to drift lower than collapse
  • Equities. The VIX below 15 hints at new highs for US equities, but a consolidation phase is still likely
  • Commodities. Tailwinds for crude – demand dominance, financial markets recovery – are fading


01 Mar 2019

EM Strategy Monthly: China is driving aggregate EM indices: investors beware!

  • Risk: We maintain our neutral call on EM risk: easing by the Fed and PBoC is positive but we sense global growth is slowing and deflation risks are rising.
  • Brazil: We cut our call on equities to negative as we expect markets to be stuck in limbo until progress is made on pension reform.
  • China: We maintain our negative call as we expect markets to correct in the next two-three months.
  • Russia: We maintain our positive call on equities as we believe local markets are relatively immune from new sanctions.
27 Feb 2019

Macro Strategy: Running the bulls

  • Capital flows stabilise CNY and, by extension, risky FX
  • Weakest data sequence in US since ‘11 supports the “Powell put” and the “end of deleveraging” supports China QE: good news for risk short term
  • We add carry through short EUR/TRY; take some profit on GBP/USD, close BRL/CNY and close USD/KRW
15 Feb 2019

Asset Allocation: Adrenaline shot

  • Synchronised central bank easing gives adrenaline shot to ailing cycle
  • QT taper will struggle to steepen US curve, a rate cut may be needed
  • Market rally fragile, as not supported by flows, with vol still high
  • China ‘QE’ sparks some credit growth but the stimulus will disappoint
  • DMs stocks face risks but earnings not collapsing – we stay 3% o/w
  • EM long trade starting to look tired, we cut 5% between stocks and bonds
  • Another TLTRO round should support BTPs and BONOs
  • We stay u/w bonds, o/w cash as we prefer short duration in fixed income
  • USD longs large but narrow, 2019 performance will depend on crosses
06 Feb 2019

Macro Strategy: Twist untwist

  • QT taper (we expect it in March) would be important for confidence
  • But Fed reinvestment policy also key: time for “Operation Untwist”
  • Supply splurge and demand dearth: US yield curve to steepen anyway
01 Feb 2019

EM Strategy Monthly: China new monetary measures spell trouble ahead for global markets

  • Risk: We maintain our neutral call on EM risk; we are more positive on prospects for a Fed pause but more negative on the global outlook.
  • Brazil: We maintain our positive call on equities owing to the continued good reform prospects.
  • Russia: We hike our call on equities to positive; although sanctions risk is still high, it has eased over the past month. 
  • India: We cut our call on equities to negative owing to rising political risk ahead of the April/May elections.
29 Jan 2019

Strategy Chartbook: February 2019

  • Macro Drivers. Yield curves sometimes overstate recession risk, but growth is likely to slow further
  • Multi Asset. The credit cycle has moved from the ‘downturn’ to the ‘slowdown’ stage
  • Fixed Income. Fed likely to ease QT policy, helping to calm markets; EA needs (and will get) TLTROs
  • Currencies. Change in QT pace may end dollar squeeze; upside risks to EUR building
  • Equities. Tech and Industrials are the US sectors most vulnerable to China’s slower growth
  • Commodities. China’s slowdown to keep hurting commodity prices for a few more weeks


18 Jan 2019

Asset Allocation: Earnings winter is coming

  • As the economy cools, earnings will slow more than consensus expect
  • EPS growth may not go sub-zero, but 5% seems more likely than 10-15%
  • At 5% EPS growth, S&P 500 trades at 17x earnings (long-term average)
  • But Fed pause, QT taper means further sharp de-rating is unlikely
  • US, China policy responses suggests data should improve in H2
  • In the near term, however, negative surprises are likely to continue
  • We cut our equity exposure by 4% to a 3% overweight (all in DMs)
  • EM equities go to neutral, as we further rotate into EM bonds instead
  • We reduce duration some more shifting 7% from DM bonds to cash
09 Jan 2019

EM Strategy Monthly: China fears are overdone but markets face a rough patch ahead

  • Risk: We cut our call on EM risk to neutral owing to concerns about future Fed policy.
  • Brazil: We maintain our positive call on equities because of the good reform prospects.
  • China: We cut our call on equities to negative owing to the near-term economic slowdown.
  • Turkey: We cut our call on equities to negative as the economic hard landing intensifies.
09 Jan 2019

Macro Strategy: Bolsonaro Bossa Nova

  • Popular support and business confidence a tailwind for Brazil’s new government
  • Guedes driving through economic reforms will be positive for Brazilian assets
  • Meanwhile, China is in a rough patch this quarter; we buy BRL/CNY
07 Jan 2019

Strategy Chartbook: January 2019 Chartbook

  • Macro Drivers. A synchronised global slowdown and a worrying inventory overhang
  • Multi Asset. Higher leverage, asset volatility causing credit to underperform stocks
  • Fixed Income. Fed has so far halted yield curve inversion and bought some flexibility on QT
  • Currencies. Consensus FX forecasts this year are for small moves, but volatility is rising15:28 07/01/2019
  • Equities. China growth scare causing equity slump, Beijing’s response likely to be underwhelming 
  • Commodities. Slower US and OPEC+ output, recovering EM demand to help oil bottom out
14 Dec 2018

Asset Allocation: Annus Horribilis

  • 2018 was a bad year for most asset classes, 2019 is likely to be better
  • We retain a pro-risk stance, with overweights in DM and EM equities
  • Fed on pause and truce in US-China trade war to keep USD from rising
  • This, plus cheaper oil, leads us to increase our exposure to EM stocks
  • Long-term challenges remain: new highs less likely than in February
  • US Treasuries rally to stall on unfavourable 2019 supply/demand mix 
  • We further reduce duration, rotating from govvies and credit to cash
12 Dec 2018

Macro Strategy: Ghost of rallies past

  • The drag from this year’s dollar rise is no match for 2015, but equity earnings still at risk and lagged impact of strength still to feed through
  • Fed’s hint at tightening pause has likely halted the currency’s rise in the short term, but now this is all in the price
  • The key to whether USD falls next year is held by China
05 Dec 2018

Macro Strategy: Santa rally for retail

  • Fed pause, trade war pause; sell-off pause
  • Downside risks to trade growth delayed again
  • Emerging market stocks have room to recover: we buy MSCI EM and close long USD/CNH
04 Dec 2018

EM Strategy Monthly: Shorter, more volatile swings to characterize EM markets next year

  • Risk: We raise our call on overall risk to moderate positive.
  • Brazil: We cut our call on equities from strong to moderate positive.
  • China: We raise our call to moderate positive following Trump’s de-escalation of the US-China trade war.
  • Turkey: We raise our call to moderate positive as we expect further recovery from oversold levels.
16 Nov 2018

Asset Allocation: Pause for thought

  • Fed likely to pause after March hike as rates reach neutral
  • A slower escalation of the trade war means CNY depreciation to decelerate
  • More stable yuan, Fed pause to ease upward pressure on dollar
  • This should support US equities as strong USD becoming a headwind
  • Stocks’ recovery should continue, though volatility likely to persist a bit longer
  • Slower earnings growth and tighter liquidity to cause further de-rating of equities
  • Yields stable near term, but end of QE, heavy issuance to push up US yields later
  • We keep a bullish bias on USD against EM FX, but upgrade CAD, AUD
14 Nov 2018

Macro Strategy: King dollar China

  • USD the highest-yielding DM currency, but rate-FX correlations falling
  • USD/CNY yield correlation relatively high and feeding through to other FX via CNY
  • MXN, ZAR and INR are most exposed to higher US yields and lower CNY


07 Nov 2018

Macro Strategy: Let's twist again

  • Treasury issuance and term premium to raise long-term yields
  • Slowing US growth momentum calls hiking cycle into question
  • Yield curve set to untwist: we buy a 2s10s steepener
05 Nov 2018

November 2018 Chartbook

  • Macro Drivers. Growth momentum is slowing, even in the US
  • Multi Asset. Volatility has picked up in 2018, but it remains well below average
  • Fixed Income. The QE era is over, real yields set to adjust higher
  • Currencies. USD tends to rally in November; GBP upside risks and CNY downside risks
  • Equities. Selloff triggered by sector rebalancing, exacerbated by disappointing forward guidance
  • Commodities. Supply dominance causes crude price to retreat as sanction fear fades
01 Nov 2018

EM Strategy Monthly: Trade war is already past 'peak Trump' for EMs

  • Risk: We maintain our moderate negative call on overall risk.
  • Brazil: We hike our call on equities to strong positive following the recent elections.
  • Mexico: We cut our call on equities to negative following the cancellation of Mexico City’s new airport project.
  • Russia: Large current account and fiscal surpluses put Russia in a strong position in the event of renewed sanctions. We maintain our positive call on equities.
24 Oct 2018

Macro Strategy: November to remember

  • November is usually a good month for USD
  • And mid-term elections tend to be bullish for US stocks
  • We buy USD vs JPY and INR to trade on November seasonality, and take profit on BRL/MXN
05 Oct 2018

Macro Strategy: FX report another trade war weapon

  • China not officially a “currency manipulator”, and it doesn’t matter anyway
  • Germany’s egregious surplus safe for now, but will be tackled eventually
  • Thailand may debut in next month’s report. It satisfies the criteria
03 Oct 2018

EM Strategy Monthly: EM Market Outlook: Short-term relief but no medium-term let-up

  • Risk: We raise our call on overall risk to moderate negative from strong negative.
  • Brazil: We raise our call on equities to positive as we expect a hope rally following the election this month.
  • China: Growth has been little affected by Trump’s trade war; we move to a positive call on equities after the recent downturn.
  • Russia: With its large current account and fiscal surpluses, Russia is in a strong position to outperform; we maintain our positive call on equities.
28 Sep 2018

October 2018 Chartbook

  • Macro Drivers. Trade war becoming material, EM headwinds unlikely to fade
  • Multi Asset. US equities tend to outperform when the dollar strengthens – but will it?
  • Fixed Income. The importance of global QE as a factor driving fixed income markets is already fading
  • Currencies. USD picture against DMs mixed; EUR supported by changing EA balance of payments 
  • Equities. US capex continues to accelerate, and the outlook remains rosy
  • Commodities. Both technicals and fundamentals suggest the Brent-WTI spread should narrow
12 Sep 2018

Macro Strategy: The end of QE

  • As the pace of QE slows, so does its dominance in fixed income markets
  • Bunds are cornered, but fixed income volatility set to rise in rest of euro area
  • Gilt outflow suggests rebalancing out of the UK: we sell Gilts vs Bunds
04 Sep 2018

September 2018 Chartbook

  • Macro Drivers. Late-cycle signs in the US, and Chinese credit growth to pick up
  • Multi Asset. Liquidity tightening is starting to bite, just as EMs face a perfect storm
  • Fixed Income. Curve flattening risks inversion, especially as 10y yield has been unchanged for 6 months
  • Currencies. If trade wars escalate, CNY could fall a lot further
  • Equities. EMs cheap enough to rebound – but this is unlikely while globalisation is going into reverse
  • Commodities. Oil demand outlook clouded by trade war, market likely to stay range-bound this year
04 Sep 2018

EM Strategy Monthly: Why we are facing a perfect storm in EMs

  • Risk: We maintain our strong negative call on overall risk.
  • Russia: With sanctions risk mostly priced in, we maintain our positive call on equities.
  • China: We maintain our strong negative call on the yuan.
  • Mexico: With the tentative deal on NAFTA, we maintain our positive call on equities.
20 Aug 2018

EM Watch: One crisis too many

Turkey: Brunson on US-Turkey vs Turkey on EM
Turkey: Investor call reveals blind spot
Global: Rising inflation raises macro risks
China: Weak data to accelerate stimulus
Brazil: Polls to dictate market sentiment 
India: Weaker rupee: worsening fundamentals
Russia: Tax: Sechin vs Siluanov
Mexico: Direct exposure to Turkey via BBVA
Indonesia: Two more hikes to come

17 Aug 2018

Asset Allocation: The currency arms race

  • Trade war morphing into currency war as China weaponises the yuan
  • Much more CNY weakness likely if US ratchets up tariffs: we go -2
  • Flat yield curve, tighter liquidity, Tech woes all extra risks for global equities
  • US stocks’ safe-haven status also threatened by strong dollar, rich valuations
  • Last month’s risk reduction paid off; our asset allocation is broadly unchanged
  • But we add some EM equity risk (Mexico, India) and reduce DMs (Japan, France)
  • Risk aversion limiting rise in global yields: we stay o/w government bonds
15 Aug 2018

Macro Strategy: Weaponising FX

  • Policymakers talk down the USD but the only way is up in this trade war
  • China FX weakness has offset some tariff costs; more to come
  • We buy USD/CNH upside via a digital call and sell CNH/JPY
13 Aug 2018

EM Watch: Do fear the rebound

Turkey: Limited contagion no comfort for EM
Global: Could US tariffs be bullish for EM?
China: The road to 15% RMB depreciation
Brazil: Electoral volatility positioned to rise
India: Easing regulation still has further to go
Russia: Sanctions and new tax threats
Mexico: Great expectations risk disappointment
Philippines: Growth number hit by net exports
August EM slide deck: EM in charts: Trade War to Currency War

01 Aug 2018

EM Strategy Monthly: China is winning the trade war - what are Trump's next moves?

  • Risk: We maintain our strong negative call on overall risk.
  • Russia: We think valuations are attractive and sanctions risks low.
  • China:  We maintain our negative call as we expect trade tensions to persist.
  • Mexico: Improving prospects for a NAFTA deal are positive for equities.
01 Jun 2018

EM Strategy Monthly: Why exit from QE is proving traumatic for some EMs

Risk: We maintain our negative call on overall risk.
Russia: We move to a positive call on equities following an easing of sanctions risk.
Brazil: We move to strong negative on faltering recovery and rising political risk

29 May 2018

EM Watch: Asia to win from trade war fallout

  • Global: EM Asia set to win from trade war fallout
  • China: Policy tightening accelerates defaults
  • Brazil: Truckers’ strike highlights rising risks
  • India: Monsoon to keep lid on inflation
  • Russia: Dividends and orthodox policies
  • Mexico: The hard road to a light NAFTA 2.0
  • Thailand: High growth unlikely to continue
23 May 2018

Macro Strategy: Liquidity roadmap bodes ill for EM

  • Turkey and Argentina could lead EMs lower still
  • Liquidity conditions likely to improve briefly before deteriorating in H2
  • Risk premium to rise: we take off USD/ZAR short and tighten stops
18 May 2018

Asset Allocation: Unsynchronised growth

  • Global growth has become less synchronised, with EA and China slowing
  • But, with the US still going strong, the end of the global cycle is not imminent
  • Cheaper valuations in all asset classes fairly reflect heightened risks
  • DM equities still the better choice; EMs under pressure from higher USD, yields
  • 10y yields roiled by QT, but breakout scope limited by short positioning
  • Risks rising for credit but too early to be short – we stay close to benchmark
  • Dollar strength likely to be transient – we remain bullish EUR
28 Mar 2018

Trading Trade Trouble

  • US has a framework to discourage trade manipulation; next report due in April
  • We sell CNY/KRW as Korean FX intervention likely to diminish
  • Tariff tit-for-tat retaliation good for BRL as soybean exports grab market share
27 Mar 2018

April 2018 Chartbook

  • Macro Drivers. Fiscal stimulus is stoking an overheating US economy, trade wars may be a drag
  • Multi Asset. S&P ERP in line with long-term average, making stocks fair value vs bonds
  • Fixed Income. Market underestimates pace of Fed hikes; ECB underestimates impact of unwinding QE
  • Currencies. Change in Fed reaction function means USD no longer the worst currency in the world
  • Equities. The RoE gap between EA/Japan and the US is narrowing, supporting higher valuations
  • Commodities. Oil demand to continue outstripping supply in the absence of trade wars
19 Mar 2018

Trade War, IP: China in The Firing Line

  • Global: Shoot first style will hit markets
  • China: US-China tensions set to escalate
  • Brazil: Short-term fiscal outlook improves
  • India: Bypoll losses pile pressure on Modi
  • Russia: Putin’s victory signals are positive
  • Mexico: NAFTA runs into election season
  • Turkey: The lira is teetering on the brink
  • Indonesia: Politics raises stability risks
  • Strategy: EM political risks in 2018
16 Mar 2018

This is What Normal Looks Like

  • VIX higher than it recently was doesn’t mean we’re in a vol ‘new normal’
  • 2017 was a freak year for volatility – this is what ‘normal’ looks like
  • The cycle is maturing but overheating is not imminent
  • Trade war risk is back but still fairly remote – we don’t position for it
  • Higher EA and Japan RoE should narrow the valuation gap with the US
  • Bonds to continue consolidation; Fed meeting to set tone for next move
  • Dollar no longer the weakest currency in the world
19 Jan 2018

It is Rational to Be Irrational

  •  2018 is likely to see the beginning of the equity market melt-up 
  •  During the late stages of a rally, expensive stocks get more expensive 
  •  Also, high-beta equities tend to outperform low-beta 
  •  Rational to be irrational: dumb beta likely to beat smart alpha, again 
  •  We go 16% overweight on stocks after US, China upgrade to +2 
  •  We continue to see upside to yields; we cut IG, HY, EM debt by 6%  
  •  Euro on the front foot: growth and positioning warrant upgrade to +2 
  •  Dollar likely to stay on the back foot: we raise GBP and AUD to 0 from -1 
10 Jan 2018

Neither Growth Nor Flows Support The Dollar

  • Global growth strong but US data likely to enter a soft patch 
  • Short-USD positioning is clean, and cleaner than it looks in EUR 
  • Add short-USD exposure by selling USD/RUB, close Gilt-UST trade on China news 
09 Jan 2018

Why A 'Putting Money To Work' Rally Will Prove Positive For Emerging Markets

  • Risk: We raise our rating on overall risk for EM assets to strong positive.
  • China: We hike our call on China equities to strong positive.
  • Russia: We maintain our positive equity call amid improving economic fundamentals


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