Bank of American is out with a good note highlighting that ‘markets stop panicking when central bank start panicking’. Now, I’m not sure markets were panicking (especially not outside of China) and I’m not sure central banks are panicking either but they’re cutting rates.
In any case, there are many good points here and they calculate China stimulus at 3% of GDP. I am certainly on board with the idea that long-term disinflation remains intact.
- Central banks globally are panicking, cutting rates and easing policies to avoid economic slowdown.
- Despite supposed economic slowdown, global stock market cap is nearing October 2021 highs.
- Policymakers are desperate to prevent rising unemployment and political populism.
- This is leading to a potential “blow-off top” in global equity markets.
- Long-term inflationary themes of the 2020s remain, including shifts in politics, society, policy, trade, geopolitics, technology, environment, and demographics.
- Commodities, especially gold, are seen as hedges against debt, deficit, and currency debasement.
- Investors are underweight on commodities, while Chinese bonds and stocks show extreme valuations compared to U.S. counterparts.
They summarize:
Positioning shows unloved commodities (industrial metals), materials & International stocks (EM & EAFE ), are the best rotation “breadth” plays so long as China stimulus means 2% new “floor” for China 10-year yields (in other words, as long as China follows through with action this time).
This article was written by Adam Button at www.forexlive.com. Source