Articles by Chun Wang Director of Multi-Asset Strategies

The CPI numbers exceeded the most aggressive market estimates. The bond market’s message is quite clear: the concerns of Fed tightening outweighs inflation. While it’s still debatable whether inflation is “transitory”, the reflation trade still gets the benefit of the doubt. 

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With the looming Fed taper and valuations stretched on almost all risky assets, volatility is likely to increase in the near term. Among fixed income, we are favorable toward TIPS and cautious on credit.

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The Fed surprised the market with a hawkish projection of two rate hikes in 2023. Real yields did not move up as they typically do with such an episode. Overall, the damage was limited to the reflation trade, and the risk-rally is intact.

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The talk of taper has started to resurface. In this context, higher inflation might become a negative for credit. For now, we remain favorable toward TIPS but turn cautious toward credit.

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Most people agree that growth stocks have longer duration than value, but few bother to back this up with numbers. Our implied equity-duration study says the conventional wisdom is right: Growth stocks do have longer duration. But... the devil is in the details.

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The CPI numbers blew past market expectations. Equity investors might feel it’s too hot, as higher inflation has historically been associated with lower equity valuations.

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The reflation trade continued with higher breakeven rates and lower real yields, a favorable make-up for risky assets.

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Economic numbers were red hot in April but a funny thing happened when the awesome data rolled in—bond yields actually went lower. Expectations have trended upward, and “whisper” numbers have set the bars even higher.

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The CPI numbers are a tad better than market expectations. Expectations for higher inflation are already quite high and that means simply meeting expectations might not be enough.

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The reflation theme continues to be supported by the powerful policy mix and a successful vaccine rollout. Within fixed income, we are favorable toward TIPS and short-term high-yield credit.

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The price action in the DXY Index over the last year shows an uncanny resemblance to the 2017-18 period, both in duration and magnitude. Overall, we believe the dollar could strengthen in the near term, but the longer-term bearish trend remains intact.

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March 23rd marked the one-year anniversary of the COVID-19 bear-market bottom. We are all eager to turn the page on the pandemic ordeal and move forward to brighter days ahead. Looks like some big help is coming our way.

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While mechanical signals generated from extremely low RAI levels can be noisy, extended valuations on most assets suggest we err on the side of caution.

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The market focus has started to shift from a reflation trade to a real-yield tantrum. We compare the latest real-yield tantrum with four prior episodes where rate increases were driven by higher real yields, while breakeven rates were flat to lower: 2005, 2013, 2015, and 2018.

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The Core CPI numbers are slightly below consensus. With equities at extreme valuations, having well-contained inflation is not a bad thing at all. Enjoy the “goldilocks” while it lasts.

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We remain favorable toward credit including investment grade and high yield corporates.

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We look at the recent short squeeze and examine how these populist movements affect the market performance in populist vs. establishment countries, and dig deeper into the regional versus sector effect.

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The CPI numbers are largely in line with expectations. A blue sweep and a new Fed regime is a powerful combination that should be taken seriously. We now believe the odds of higher inflation are materially better than just a month ago.

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We remain favorable toward credit and recommend both investment grade and high yield corporates.

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We’ve updated our time-cycle composite for 2021 and it looks like it will be a year of “two halves,” with a low-vol bull-market extension in the first half of the year, followed by a much more volatile second half. This also appears to extend outside the U.S.

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