Macro Economic Research
26
Aug
2016
China’s housing: too many in wrong places


• Policy efforts to reduce housing inventories have achieved some success  
• But over-building in the old industrial regions remains serious  
• Policymakers’ focus now shifts to bursting bubbles in top ti...

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25
Aug
2016
Spain leads the euro area recovery


• Euro area growth moderates in Q2 due to ‘special factors’, yet remains solid  
• Recovery led by Spain and Germany; France takes a breather; Italy is a laggard  
• Expect above-trend growth to conti...

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24
Aug
2016
German swing to services confirmed


• Service sectors drove fair Q2 growth despite fall of industry and construction  
• Domestic demand, not exports, the chief driver of growth YoY since 2014  
• Prospective 1½-2% growth suggests ECB QE tap...

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23
Aug
2016
ECB’s and BoJ’s role in US markets


• Foreign central banks have a lot to answer for in the US  
• Euro area piled into long-term debt securities but Japan is more complicated  
• Emergency easing is not eternal and US inflation could surprise in 2...

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Investment Strategy
24
Aug
2016
Political storms brewing


• Volatility is low for now but political risks will increase in coming months
• A perfect storm of Italian, French and German key votes is brewing
• Unless it comes ashore early, EA stocks can outperform US in the near term...

LSR Macro Strategy
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17
Aug
2016
Fiscal stimulus and the bear case for bonds


• A possible shift of emphasis to fiscal stimulus is a major risk to core bonds
• It worsens the demand-supply balance even in the absence of inflation
• Joint monetary-fiscal stimulus can impair bonds’ recession-hedgi...

LSR Macro Strategy
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12
Aug
2016
US Treasuries and the inflation puzzle


• US inflation is likely to accelerate after a period of stability
• The Fed will have to speed up the pace of policy tightening
• UST sell-off unlikely as valuations not as expensive as they appear
• Equity multiples a...

LSR Asset Allocation
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10
Aug
2016
What's the fair UST 10y yield?


• Around 3.5% if we think only US growth and inflation matter as drivers
• Around 1% if we also factor in unconventional policy and demand for yield
• Hikes may not cause a big sell-off; surprise inflation and fiscal expansi...

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