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Tag Archives: Fiscal policy

The Week Ahead: Inflation and the Fed

The reflation and inflation meme tightened their grip on the markets.  Interest rates have risen, and curves have steepened.  Two events occurred around the same time in early November that sent a similar signal: the US election with prospects for significantly more stimulus and a vaccine's availability.  Since the US election and the announcement of a vaccine in early November, the 10-year US break-even has risen from about 165 bp to over 225 bp, before finished the week near 2.15%....

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Greenback Remains Heavy

Overview: The equity rally appears undeterred by the rise in interest rates or the surge in oil prices.  Led by Tokyo and Hong Kong, Asia Pacific equities advanced.  China, Taiwan, and Vietnam markets remain closed. After gapping higher yesterday and extending the gains in early turnover today, the Dow Jones Stoxx 600 is consolidating.  US shares are trading higher ahead of the re-opening after a long holiday weekend.  The US 10-year benchmark yield is near 1.24%, almost nine basis points...

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Players are Not Buying Everything Today

Overview:  The rally of US benchmarks to new record highs helped lift most Asia Pacific markets today, but the bulls are pausing in Europe, and there has been little follow-through buying of US shares.  Australia, South Korea, and Indonesia did not participate in today's regional advance led by a 2% rally in China's main indices. Most European markets are lower, and the Dow Jones Stoxx 600 may post its first loss of the month.  US shares are trading a bit lower.  The US 10-year note began...

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Limited Follow-Through Dollar Selling to Start the Week

Overview: The US dollar has drifted higher against the major currencies and most of the freely accessible emerging market currencies, paring the losses seen before the weekend in response to the disappointing employment report. Easing pressure from the pandemic as the surge in cases after the holidays may also be encouraging risk-taking to extend the global equity rally.  Several markets in the Asia Pacific region, including Japan, China, India, and Thailand, rose by more than 1%.  That was...

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2020 is over, what’s the next pain trade?

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.  The Trend Asset Allocation Model is an asset allocation model that applies trend following principles based on the inputs of global stock and...

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The Democrats’ trifecta win explained

Last weekend, I conducted an unscientific and low sample Twitter poll on the market perception of the Georgia special Senate elections. The results were surprising. Respondents were bullish on both a Republican and Democratic sweep.  As the results of the Georgia Senate race became clear, the analyst writing under the pseudonym Jesse Livermore tweeted that these results represent a “fiscal Goldilocks” scenario. However, the analysis of the investment risk and opportunity is far...

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The Investment Climate and the Dollar

We have all been hopeful that a vaccine could be developed for the coronavirus, and these hopes were not vain.  Pfizer and Moderna's promising results are just the tip of the iceberg, and in the coming weeks, more results from other companies are expected.  Make no mistake about it.  There is a several-month slog in front of us as the virus surge has yet to be convincingly turned in Europe, let alone the US, which seems to lag behind a couple of weeks.   The data highlight of the week, the...

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Will Mnuchin and COVID derail the cyclical rebound?

I hope that I haven’t offended the market gods. Just after my bullish call for a cyclical recovery (see Everything you need to know about the Great Rotation but were afraid to ask), a number of contrary data points have appeared to cast doubt on the reflation thesis.  The markets were jolted by the news on Thursday that Secretary Treasury Mnuchin has declined to extend CARES Act emergency lending facilities established with the Federal Reserve. In addition, Treasury has asked the Fed to...

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Buy the cyclical and reflation trade?

The global economy seems to be setting up for a strong recovery. We are seeing a combination of easy monetary policy, slimmed-down supply chains, and a rebound in consumer confidence.  The cyclical and reflation trade is becoming the consensus view. However, there may still be time to board that train. Futures positioning in the reflation trade is rising, but levels are not excessive.  What are the bull and bear cases?  The bull case The bull case is relatively easy to make. The...

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Does the economy even need more stimulus?

House Speaker Nancy Pelosi has set a Tuesday deadline for an agreement for a coronavirus stimulus package before the election. Recent data begs the question of whether more stimulus is even needed.  Last Friday’s retail sales print was astonishingly strong and beat market expectations. While retail sales statistics are notoriously noisy, September retail sales rose sequentially in all major categories.  In addition, consumer confidence improved in early October despite the expiry of...

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