FICC

The dollar countertrend move has more downside, but beyond the next few months, the dollar remains in a cyclical bull market. Improvements in global growth, even if temporary, are likely to lift non-U.S. rates more than U.S. ones. The euro will benefit from that move as investors still have deep negative feelings toward EUR/USD, exactly as economic momentum has moved in favor of Europe. The SEK should outperform.

Saudi oil policy, like its defense policy, will be more aggressive and less predictable, following Deputy Crown Prince Mohammed bin Salman's apparent nullification of a production "freeze" deal at Doha.

The balance of risks favors accelerating wages and stable core inflation during the next few months. This will result in a move higher in rate hike expectations, benefitting Treasury curve flatteners.

Japanese policymakers are in the process of shifting away from negative rates and fiscal consolidation, leaving JGB yields exposed to any move to weaken the yen that could raise depressed inflation expectations.

Japan is in a liquidity trap: bad economic news is good for the yen while good economic news is bad for the yen. Chinese reflation could help risk assets in the months ahead, but poor EM fundamentals will reassert themselves later this year. The yen bull market is not over yet. The BoC was more positive on growth than anticipated. The BoE's Super Thursday was a non-event.

A weaker USD resulting from more dovish forward guidance from the Fed, and evidence of continued production declines in non-OPEC and OPEC countries will continue to buoy oil prices.

Treasuries appear overbought in the near-term, especially given evidence of a rebound in global manufacturing, but we would need to see evidence of a sustained re-synchronization of global growth before advocating a shift to below benchmark duration on a 6-12 month horizon.

Special Report

In this Special Report, we discuss the state of the New Zealand business cycle and propose some trade ideas to capitalize on the excessive pessimism currently at play in New Zealand bond and currency markets.

Special Report

In this piece, we present our general analytical framework, with a focus on long-term determinants. We go through various methodologies and relate those methods to our views and current FX market developments, concluding that the dollar bull market is not over, EM currencies have more structural downside, and that it will take herculean efforts from the BoJ to arrest the yen surge.

These general themes - along with our assessment that markets were overestimating downside price risk and underestimating upside risks arising from supply destruction and geopolitical instability - supported the best-performing strategic recommendations we made last quarter.