Policy

Rather than teetering into recession, global growth has firmed since the start of the year. While we still expect inflation to decline, the risk that central banks will need to lift rates more than discounted has increased. Long-term focused investors should start raising cash allocations by trimming their equity holdings.

US domestic politics, hypo-globalization, and Great Power Competition favor a revival of US manufacturing capacity. The industrial sector will benefit from the attempt to rebuild US manufacturing. Go long physical infrastructure and defense stocks. Find opportunities to take a long position on the universe versus the metaverse.

Bulls and bears are perplexed because they suffer from recency bias. The investment roadmap and framework of the past 15 to 20 years should not be used to analyze current US financial markets. US corporate earnings will likely plunge substantially even in the case of a mild recession.

Investors should avoid / stay underweight Turkish stocks and local currency bonds versus their respective EM benchmarks. Stay underweight Turkish sovereign credit.

In this Special Report, BCA’s Foreign Exchange Strategy and Global Fixed Income Strategy teams argue that as the lagged impact of higher interest rates hits the Canadian economy, what will initially appear as a potential hard landing will morph into a mild slowdown. During the process, Canadian government bonds will outperform, and the CAD will drop, setting the stage for a coiled-spring rebound.

Great Power Rivalry is taking another leg up as Russia and China further align their geopolitical interests. Investors should stay long USD-CNY, favor defensives over cyclicals, and markets like North America and DM Europe that have less exposure to geopolitical risk. 

In this Special Report, BCA’s Foreign Exchange Strategy and Global Fixed Income Strategy teams argue that as the lagged impact of higher interest rates hits the Canadian economy, what will initially appear as a potential hard landing will morph into a mild slowdown. During the process, Canadian government bonds will outperform, and the CAD will drop, setting the stage for a coiled-spring rebound.

Since 1970, the track record of US housing recessions as the ‘canary in the coal mine’ for economic recessions is a perfect four out of four: 1974; 1980; 1990; and 2007. If this perfect track record continues, the current US housing recession presages an economic recession that starts in 2023. We discuss the investment implications.

This week’s report considers the risk that inflation will be stickier than we anticipate, and looks at what a fair value for the 10-year Treasury yield might be in a scenario where the Fed keeps the policy rate on hold for a prolonged period.

Long-term drivers, including the growing ability of banks to returns cash to shareholders, point toward a strong structural performance for European financials. However, the ECB’s aggressive tightening campaign could still spoil the party.