Macro Monitor

Banks’ lending standards for C&I loans (typically to large businesses) tightened quite a bit in Q1, which bodes ill for both investment and overall economic growth going forward.

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Our Risk Aversion Index ticked lower in April and stayed on the “Lower Risk” signal. Most risky assets participated and the rally was broad-based. The only fly in the ointment is EM assets. The recent weakness in both Chinese stocks and the Yuan is certainly worth paying attention to.

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The Fed not only signaled no rate hike for the rest of 2019, but also committed to unwinding its balance-sheet reduction program, starting in May and ending in September. The market took it one step further and priced in a rate cut in the second half of 2019.

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With most major central banks now turning dovish, our view on credit is more constructive. We still view pull-backs in EM assets as better entry points. Investment grade corporate bonds are also attractive, and we maintain a neutral view on Munis and High Yield bonds.

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The biggest near-term wild card is the infinitely confusing and hopelessly unpredictable Brexit.

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While global central banks’ dovish turn provides a supportive backdrop for the risk rally, short-term overbought conditions are everywhere too.

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A significant policy move by China’s People’s Bank of China (PBoC) has gone largely unnoticed.

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With the Fed now pausing its rate hikes, and the PBoC recapitalizing banks and reactivating lending, our view on credit has turned from defensive to neutral, with a more constructive bias. One of our biggest concerns, global central bank liquidity withdrawal, has been eased by the recent policy moves.

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Many were caught off guard by the relentless drop in stock prices and bond yields, but we think the real problem is that most people have underestimated the twin threats of central bank tightening and the ongoing trade war with China.

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We are heading into a pre-election year that boasts one of the best time-cycle patterns. Most markets, Developed and Emerging, show good patterns for 2019, even with different election cycles.

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Despite some near-term oversold conditions in risky assets, we continue to recommend defense and expect higher volatility to remain across all asset classes.

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Liquidity reduction (QT) by global central banks is already showing up in slower M1 growth in all G3 countries. Slower M1 growth has led economic slowdown by about twelve months.

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We created an equity basket that can track the movement of the U.S. 10-year yield. Overall, it does a good job of capturing the major moves.

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Despite the recent signal whipsaws, we have been cautious toward all risky assets and we continue to recommend defense amid higher volatility across all asset classes.

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Despite the recent signal whipsaws, we have been cautious toward all risky assets and we continue to recommend defense amid higher volatility across all asset classes.

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The 40 bps jump in the 10-year yield, a 2-standard-deviation event, occurred within a five-week win-dow. Interestingly, historical data doesn’t suggest a continued increase in the near term.

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We have been leaning toward the defensive side despite the recent signal whipsaws and we continue to recommend caution in light of the increase in volatility across all asset classes.

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A significant rise in real yields would make us turn cautious toward all spread products.

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While mid-term elections are rarely big market movers, this year’s election demands more attention as it has the potential to alter the balance of political power in Washington.

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The recent move higher in rates had broader support as other major markets also saw higher rates.

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