Real yields on US investment grade corporate bonds have turned negative for the first time in history, reflecting the combined effects of accommodative monetary policy and a firming in inflation expectations. Against a simultaneous backdrop of all-time high duration, we believe fixed income investors need to be selective as ever.
Global stock markets continued their 2020 rally on the prospect of a more aggressive US fiscal policy under a new Biden administration. The S&P 500 shrugged off violence at the Capitol and ended at a record-high level of 3824.68, rising 1.88% for the week. Strength continued outside the US. The FTSE 100 soared to the highest level since March, rising 6.40% for the week. Similarly, Euro STOXX 600 ended higher 3.06%. Read More
Global oil prices continued to rise on the back of tighter near-term supplies. Saudi Arabia, the world’s largest oil exporter, announced a voluntary output cut by 1 million barrels per day in February and March. Other members of OPEC+ are expected to hold output steady or make small increases in early 2021. WTI broke $50 for the first time in 11 months and ended higher at $52.54 per barrel (bbl). Brent also rose to $55.99 per bbl. Read More
US Treasuries sold off last week after Democrats won leadership of the Senate, unifying government control. The Democratic majority raises the prospect of greater fiscal spending in the near-term, and yields climbed in anticipation of more debt and potentially more growth. The US 10-Year yield rose 20bps, breaking 1% for the first time since March. The 2s10s curve reached its steepest level since 2017 years at 97bps. Global sovereign yields moved higher as well, with the 10-Year UK Gilt and German Bund yields rising to 0.29% and -0.52%, respectively. Read More
The British pound fell in its first week post-Brexit transition, down –0.76% against the US dollar. Challenges of the thin trade agreement, renewed COVID-19 lockdowns, and the specter of a negative policy rate all weighed on the sterling. The euro rose 0.2% against the US dollar and the US dollar index ended the week up 0.02%. Read More
Democrats won both runoff Senate seats in Georgia, gaining an effective Senate majority and control of the House, Senate, and White House. The prospect for greater fiscal stimulus (we estimate ~$750bn in Q1) has raised our 2021 full-year US GDP forecast to 6.4%. Read More
US December ISM surprised to the upside for both manufacturing and service sectors, both advancing against expectations for declines. The ISM manufacturing index increased to 60.7, the highest level since 2018. Non-manufacturing rose to 57.2, though showed weakness in the employment component. Read More
The December US headline unemployment rate held steady at 6.7% as the labor market recovery continued to stall amid virus resurgence. Nonfarm payrolls fell for the first time since April, dropping by 140k. Euro area headline unemployment continued to decline from its peak at 8.7% in July to 8.3% in November. Read More
In the Euro area, headline and core inflation came out unchanged in December, at -0.3% and 0.2% respectively, and remained at a record low for the latter. Both readings should mechanically rebound next month upon a reversal of Germany's COVID-related VAT rate cut. 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.
NFIB Small Bus. Opt. (Cons: 100.3, Prior: 101.4)
US CPI YoY (Cons: 1.3%, Prior: 1.2%)
US Core CPI YoY (Cons: 1.6%, Prior: 1.6%)
US Jobless Claims (Cons: 785k, Prior: 787k)
UMich. Sent. (Cons: 80, Prior: 80.7)
US IP (Cons: 0.4%, Prior: 0.4%)
UK IP (Cons: 0.4%, Prior: 1.3%)
EU IP (Cons: 0.2%, Prior: 2.1%)
“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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