Latest from BCA Research

The resiliency of consumers through 2023 has surprised investors. However, consumer strength will fade into yearend as factors supporting growth in income and spending are waning. i.e., job gains are slowing, wage growth is decelerating, and excess savings are running out. Consumers are starting to feel the pressure from tighter monetary policy as financial obligations rise. Hence, as consumer spending decelerates, economic growth will slow into yearend. We confirm our underweight of the Consumer Discretionary sector.

MacroQuant is overweight equities, underweight bonds, and neutral cash.

US bond investment takeaways from this week’s PCE and employment releases.

In this report, we explore what a new BRICS+ union means for the dollar over the next 6-to-9 months.

A global recession continues to be likely over the next 12 months. The impact of tighter monetary policy is slowly being felt. Government bonds look increasingly attractive as a safe haven.

Bank Credit Analyst

Bank Credit Analyst

In Section I, we respond to the ongoing challenge to our view that the US economy is on a recessionary path. The available evidence overwhelmingly supports the notion that US monetary policy is tight, which argues against the “no landing” economic scenario. It also underscores that the recessionary clock is indeed ticking unless the monetary policy stance eases soon. The “soft landing” narrative remains improbable and may have been unduly boosted by artificially low inflation readings over the summer. Until concrete signs of the meaningful rate cuts emerge, we will continue to recommend that investors maintain defensive portfolio positions. In Section II, we review the “modern-day” Phillips Curve, and explain why it is unlikely that the Fed will see a sustainable return to its 2% target without a rise in the unemployment rate above NAIRU.

Stocks should continue to rally in the near term, but investors should prepare to turn more defensive towards the end of the year in advance of a recession in 2024.

The Fed and ECB talked a good game as they redoubled their commitments to returning core inflation to 2% p.a. at Jackson Hole. However, their outmoded inflation-fighting playbooks do not address supply tightness in commodity and energy markets, which keeps inflation risk elevated. The proposed expansion of the BRICS states seeks to capitalize on these trends, and supports efforts to weaken the centrality of the USD in global trade. We remain long commodity exposure via ETFs to retain exposure to energy and metals producers and refiners.

We comment on Jay Powell’s Jackson Hole speech and recommend shifting to a barbelled allocation along the Treasury curve.