FICC

Government bond markets have likely overestimated the degree of policy dovishness that is likely to be delivered by the major central banks in the next few months.

The U.S. and the global economies are improving. A synchronized upswing normally trumps the Fed in determining the path for the dollar. U.S. inflation expectations are likely to rise relative to the rest of the world, weighing on the dollar. The risks for EUR/USD have risen. We are hedging our long EUR/USD position by shorting the euro on some crosses. Buy CHF/JPY.

Clearing the refined-product overhang in the global storage markets is not as straightforward as it used to be: The Kingdom of Saudi Arabia (KSA), China, and India all are making concerted efforts to boost refining capacity, which is leaving them with surplus product that ends up being sold in export markets.

This week, we are sending a Special Report written by BCA's Chief Global Strategist Peter Berezin, discussing the end of the 35-year global bond bull market. In addition, we are also sending you a joint U.S. Bond Strategy/Global Fixed Income Strategy Weekly Report which discusses the end of the secular bond bull market and the implications for global bond strategy.

Special Report

This week, we are sending a Special Report written by BCA's Chief Global Strategist Peter Berezin, discussing the end of the 35-year global bond bull market.

Special Report

Using long-term real rates, Uncovered Interest Rate Parity still works for exchange rate determination. Currencies are also affected by the global risk appetite and commodity prices. Intermediate-term fundamentals for EUR/USD are pointing up, but the timing is not optimal to buy it yet. However, the long-term outlook for the euro remains poor. Currently, USD/JPY has room to rally in the short term. Long-term factors will also continue to weigh on the yen.

Refiners will reduce run rates over the next month or so to clear unintended inventory accumulation, but it's not like they've never had to deal with this situation.

Special Report

Our newly-developed European bottom-up Corporate Health Monitor is signaling that European corporate balance sheets, in aggregate, are steadily improving.

Developed Market bond yields are too low relative to improving global growth and the strong recovery in risk assets post-Brexit. Reduce portfolio duration to below-benchmark.

Over the past 12 months, the yen surged, powered by global deflationary fears. Japanese monetary conditions massively tightened, causing additional yen strength, creating a vicious circle. Policymakers will respond, but markets are likely to be disappointed. Nonetheless, global factors could temporarily move against the yen. Buy NOK/JPY and AUD/JPY. The BoE will move next month. The BoC will stand pat for the foreseeable future.