The recent higher-rate trend has investors exploring the point at which they become an equity headwind. With rates still a tailwind, we believe equities have upside.
The recent higher-rate trend has investors exploring the point at which they become an equity headwind. Speed of change, economic growth, and equity risk premium moves are impactful, but isolated, the historical average has been 5.1%. Adjusting for today’s lower rate (r*) at which the economy grows while maintaining target inflation, that point falls to 3.6%. With rates still a tailwind, we believe equities have upside.
Global equity markets were mixed amid concerns over the potential for a global trade war coupled with instability in the Trump administration. In the US, the S&P 500 dropped 1.2%, while in Europe, the FTSE 100 edged lower 0.8%, and the pan-European Stoxx Europe 600 Index was up 0.1%. Japan’s TOPIX ended moderately higher, rising by 1.2%. Read More
US 10-Year Treasury yields dropped to 2.85%., with European debt acting similarly. The German Bund fell 8 basis points (bps) and the UK Gilt fell 6 bps. The lower yields followed the European Central Bank (ECB) policymakers’ warnings that inflation remains sluggish. In Japan, 10-Year yields remained flat. Overall, risk-off sentiment has caused bond rallies globally, as investors continue to assess the implications of geopolitics and trade policy on the macro outlook. Read More
The US Dollar strengthened,by 0.126. There did not appear to be any primary driver of the strength, given that US economic data was mixed with investor sentiment for risky assets fading. Outside the US, the Japanese Yen fell against the USD to 106.09, while the Euro fell to 1.228. Volatility in currency markets is a likely outcome of ongoing uncertainty surrounding global trade. Read More
WTI and Brent crude prices ended lower at $62.34 and $66.21, respectively. The Energy Information Administration’s (EIA) recent report showed larger than expected US crude inventories of 5 million barrels, with production rising as well. US output – at 10.38 million barrels/day – was a new weekly record. Read More
US PPI increased by 0.2% month-over-month (mom) in February. The magnitude was moderately more than expected, driven by a rise in the costs of services offsetting a decline in the price of goods. US CPI rose 0.15% (mom), near market consensus. The report reflected a modest rise in energy prices, while food prices stayed stable. In the Eurozone, February’s CPI reading was 1.1% year-over-year (yoy) and weaker than the market’s expectations. In line with the release, the ECB continues to express caution around weaker inflation readings. Read More
Headline and core retail sales dropped moderately, by -0.1% (mom) in February, declining for the third straight month. Retail sales ex-autos data was also released below market expectations, increasing by 0.2% mom. Read More
University of Michigan consumer sentiment rose to 102, marking the highest reading in 14 years and easily topping the market’s expectations. The reading was driven by tax reform in the US, which outweighed potentially negative assessments of implementing new tariff policies on US imports, including steel and aluminum. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
FOMC Rate Decision
UK ILO Unemployment (Cons: 4.4%, Prior: 4.4%)
US Manuf. PMI (Cons: 55.5, Prior: 55.3)
Germany Ifo Business (Cons: 114.6,Prior: 115.4)
Japan Core CPI (Cons: 1.0%, Prior: 0.9%)
Durable Goods Orders (Cons: 1.7%, Prior: -3.6%)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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