Biden’s announcement of Powell’s choice for a second term as Fed Chairman saw US short-term yields soar over the past week, even as overnight news of the pandemic caused this movement to reverse. against a backdrop of calm markets for Thanksgiving. With data remaining solid and more political focus on inflation, we think the FOMC is likely to announce an acceleration in its tapering program at its December meeting. For now, long-term yields remain in a limited range as the yield curve flattens out. Even though Eurodollar futures price a much more hawkish path for rates than the Fed’s midpoints during 2022 and 2023, markets appear to be reluctant to believe liquidity rates could exceed 2% over the long term. However, we doubt that it is possible for the curve to flatten much more than it has so far and believe that an upward move in yields should be driven by the curve’s 10-year maturity. The news of the new COVID-19 variant B.1.1.529 in the last few hours could obviously change something, but at this stage the lack of information makes it difficult to analyze or comment too credibly. Looking beyond the rate markets, it was interesting to see how the dollar was supported by rising short-term yields, while equities were supported by the fact that longer maturities experienced little fluctuation. On many points of view, this may be a logical result, given that equity is itself a long-term asset. Therefore, it is the discount rate for future cash flows from the long end of the bond market that should carry the most weight on equities. While there are rumors of accelerated tapering and the projections point to three Fed hikes in 2022 and 2023, the 30-year Treasury yield is still around 50 basis points below its March 2021 high. Seen in this light, It is understandable that equity investors remain optimistic until that changes. That said, if long-term yields begin to rise, then it could increase the risk of a trend reversal in equities and a rotation from growth to value on a sector basis. In Europe, attention remains focused on the fourth wave of COVID-19. Based on the UK experience, we expect this to subside soon and hope that politicians will keep their nerve without re-imposing the lockdown restrictions, as we saw in Austria. At this point, the lockdown seems like a political mistake to us and looking at the health data, we observe that hospitalization levels across the continent remain much lower than they were at the beginning of 2021 – despite alarmist reports from organizations such as the WHO. While we remain optimistic about the risks of COVID-19 in Europe, we think recent developments will give the ECB ample leeway to remain relatively dovish at the December meeting, despite high inflationary pressures. A € 40 billion extension in APP purchases is widely anticipated and the technical outlook for eurozone government fixed income continues to look favorable through 2022. We doubt eurozone rates will rise substantially before the end of 2023 , as a result we have a more favorable outlook on the duration of the euro than the US or the UK. Elsewhere in Europe, a coalition deal in Germany appears to pave the way for a Scholz government, to be announced early next month. Politics in Sweden also attracted attention, with the country’s first female Premier only serving a few hours in office before the collapse of the coalition that supported her. European credit spreads came under pressure during November, with swap, corporate and sovereign spreads all increasing. With supply shrinking as December approaches, we believe these movements could reverse over the next month, as long as the ECB doesn’t come up with a hawkish surprise, which we believe is relatively unlikely. The favorable seasonal factors in January should also be a constructive element, but we think this is the beginning of a re-pricing that could come later in 2022, if asset purchases were to conclude by the end of the year. In emerging markets, it was (perhaps rightfully) Turkey that was the center of attention during Thanksgiving week. After the recent rate cut by the Central Bank in the face of rising inflation, the lira came under heavy pressure due to the growing evidence of dollarisation of the Turkish economy. Erdogan has sought the support of his friends in the Middle East to bolster the national currency, although he appears to remain the architect of many of Turkey’s problems. Macro fundamentals will require tighter policy to tame inflation, and until this is recognized (possibly by a different government), we suspect Turkish assets will remain under pressure. Meanwhile, concerns over the Russian-Ukrainian border continue to grow, escalating unrest in the region. November was a difficult month for emerging markets, with negative developments at the level of individual countries, the increase in geopolitical risk,
We expect a solid US jobs report for November to be released late next week. Job vacancies in the US remain at record highs and jobless claims have fallen, suggesting that the US job market is on the mend. Consumer sales over the Black Friday / Cyber ​​Monday period will also be closely monitored, although in the absence of stocks, we think the key theme of this year’s holiday sales will be that the discounts will turn out to be far less generous than usual. . As December approaches, it is interesting to note that each of the Fed, ECB and BoE meetings will be very popular events given the current situation. Usually, the policy meetings in december are seen as non-events, given the desire not to surprise or upset the markets at a time when liquidity is scarce. However, it seems there is still a lot to decide, and if our expectations for a solid employment report followed by a solid inflation report are correct, we believe it is inevitable that the Fed will need to increase its forecasts for it. inflation by 2023 and this will become a catalyst to accelerate the pace of tapering. In the UK, too, we expect solid data for now, and in this context the BoE’s reverse in November implies that the Central Bank could see pressures build up for its action next month. In contrast to the risks of a ‘hawkish’ approach in the US and UK, we believe that a more dovish result could come from the ECB. However, Lagarde has made miscommunications in the past and the risks related to the ECB meeting remain high in the run-up to the meeting. On a darker note, it was shocking to see the loss of life in the English Channel this week. Migration tensions are a global problem and are likely to intensify in the coming years due to diverse demographic trends, geopolitical upheavals and the impacts of climate change. Individuals are being displaced in record numbers and we believe there is a need for greater understanding of how to address this problem. In recent weeks, it seems that the simmering resentment from the EU, and from France in particular, led the French authorities to turn a blind eye to the human traffickers who cram men, women and children into small and dangerous boats in freezing water so that they can ship unwanted people to the UK. Post-Brexit, there needs to be collaboration and cooperation between the EU and the UK. Despite having left the European Union, the UK remains an important neighbor. One can only hope that the recent tragedy will serve as a catalyst to prevent similar events from happening again. UK ‘Remainers’ have now come to terms with Brexit, and hopefully the EU will do the same. women and children on small and dangerous boats in freezing waters so they can ship unwanted items to the UK. Post-Brexit, there needs to be collaboration and cooperation between the EU and the UK. Despite having left the European Union, the UK remains an important neighbor. One can only hope that the recent tragedy will serve as a catalyst to prevent similar events from happening again. UK ‘Remainers’ have now come to terms with Brexit, and hopefully the EU will do the same. women and children on small and dangerous boats in freezing waters so they can ship unwanted items to the UK. Post-Brexit, there needs to be collaboration and cooperation between the EU and the UK. Despite having left the European Union, the UK remains an important neighbor. One can only hope that the recent tragedy will serve as a catalyst to prevent similar events from happening again. UK ‘Remainers’ have now come to terms with Brexit, and hopefully the EU will do the same. One can only hope that the recent tragedy will serve as a catalyst to prevent similar events from happening again. UK ‘Remainers’ have now come to terms with Brexit, and hopefully the EU will do the same. One can only hope that the recent tragedy will serve as a catalyst to prevent similar events from happening again. UK ‘Remainers’ have now come to terms with Brexit, and hopefully the EU will do the same.
