Latest from BCA Research

Special Report

Section II of this month’s Bank Credit Analyst report is a guest piece written by Martin Barnes, which we are making available to all clients. Martin, who retired from BCA Research as Chief Economist in 2021 after a long and illustrious career, expresses his personal views about the long-run outlook for inflation. He argues that the multi-decade disinflationary era is over, which will bring significant challenges for both policymakers and investors.

Bank Credit Analyst

In a guest authorship of Section I, Doug Peta presents a synthesis of the recent views expressed in our US Investment Strategy and Bank Credit Analyst reports. Doug underscores that excess savings are unlikely to support US consumer spending beyond the middle of next year, which argues for conservative investment positioning on a 6-12 month time horizon. Additionally, this month’s Section II is a guest piece written by Martin Barnes, who retired from BCA Research as Chief Economist in 2021 after a long and illustrious career. Martin expresses his personal views about the long-run outlook for inflation and argues that the multi-decade disinflationary era is over – which will bring significant challenges for both policymakers and investors.

Bank Credit Analyst

Section II of this month’s Bank Credit Analyst report is a guest piece written by Martin Barnes, which we are making available to all clients. Martin, who retired from BCA Research as Chief Economist in 2021 after a long and illustrious career, expresses his personal views about the long-run outlook for inflation. He argues that the multi-decade disinflationary era is over, which will bring significant challenges for both policymakers and investors.

The US and core OPEC 2.0 are – wittingly or not – laying the groundwork for a price band with a floor and cap on oil prices – at $79/bbl and $130/bbl, respectively – “at least” to May 2024. This accommodates multiple goals for both. To meaningfully support policy, the US would need to scale up purchases to refill its SPR. We remain long the XOP and COMT ETFs for direct exposure to energy E+P equities and commodities.

While Mexican markets will continue selling off in absolute terms, their recent underperformance versus their EM peers is a temporary setback in a cyclical and structural bull market. Domestic politics are evolving from stable to bullish: the new president will rule in a technocratic manner, respecting private sector interests. The Mexican economy will achieve a soft landing even if the US enters a recession.

This week’s report contains an update on the Treasury curve’s recent bear-steepening trend and a look at different measures of long-maturity Treasury valuation.

The wall of maturities for Office and Multifamily Real Estate is upon us. The impact of rising interest rates is also being felt by Private Equity and Venture Capital. The difficulties faced by smaller US banks is providing further tailwinds to Direct Lenders. Hedge Funds will benefit from a more volatile backdrop over the next 1-2 years. Now is the time to resize Crisis Risk Offset portfolios.

Special Report

In this Special Report, we introduce two strategies that use our Central Bank Monitors for global fixed income country allocations and currency trades. We find that using the Monitors in country selection helps improve the performance of a developed markets government bond portfolio. The CBMs can also help substantially minimize the drawdowns on a standard FX carry strategy.

China’s economic growth will stagnate, at best, rather than revive. Lower valuations of Chinese equities are justified, and share prices have more downside. The RMB will continue to depreciate versus the US dollar.

In this insight, we look at whether the recent data justifies a shift by the BoC, and some potential trades.