The relatively high return correlations across markets in recent years are giving way as volatility surges in 2022. As a result, assumptions about relationships between markets, and the degree of diversification benefits, may be in need of updating.
Macro Briefing: 24 March 2022
* Biden in Brussels for meetings with NATO, G-7 and European Union
* N. Korea test fires intercontinental ballistic missile, Japan reports
* Eurozone business activity slowed in March via PMI survey data
* Fed’s goal of soft landing for economy appears to face low odds
* Oil prices rise after Russia reports extended pipeline outage
* Putin says ‘unfriendly’ countries must pay for gas in rubles
* Russia’s invasion of Ukraine marks end of globalization, writes BlackRock’s Fink
* New US home sales fell for a second month in February
* US gasoline prices remain elevated, close to previous high in 2008:
Profiling The Key Macro Drivers For The US Labor Market
Morningstar recently observed that accurately assessing the directional strength or weakness of the US labor market requires a broad review of factors. Correctly advising in December that the weak print for the then-current payrolls report (November) was “likely just a blip given strength,” based on a more expansive read of economic data. The analysis inspires a deeper look into macro factors in search of perspective to the question: What’s relevant (or not) for evaluating labor market activity?
Macro Briefing: 23 March 2022
* US and allies to unveil new Russia sanctions as Biden visits Europe this week
* Is it time for NATO to take a more direct response to Russia’s war on Ukraine?
* Will the war in Ukraine disrupt Europe’s shift to clean energy?
* Global bond market posts biggest drawdown on record (since 1990)
* US gasoline prices rise at fastest pace on record
* UK inflation reaches new multi-decade high, driven by energy prices
* Fed funds futures predicts 60%-plus probability of 1/2 point rate hike in May
* US 10yr Treasury yield continues rising, reaching highest since May 2019:
Is US Recession Risk Rising?
The easy answer is almost certainly “yes.” The more challenging question: Does a recession call rise to the level of a high-confidence forecast? No, not yet. For now, and probably for the immediate future, a high level of uncertainty will continue to keep the crowd guessing.
Macro Briefing: 22 March 2022
* European Union support is rising for banning Russian oil
* Intelligence indicates growing Russian cyber threat to US, Biden says
* Fed will raise rates more aggressively if needed, says Fed’s Powell
* Powell’s comments on tackling inflation are wake-up call for Wall Street
* Fed’s Powell says short-Term yield curve is better recession risk predictor
* US housing market set for ‘substantial downshift in activity,’ economist predicts
* US economic growth remained solid in February, via Chicago Fed index:
Risk-On Sentiment Resumed For Most Markets Last Week
Most markets around the world staged a strong rebound last week, led by stocks in foreign developed markets ex-US, as of Friday’s close (Mar.18). The main exceptions: US bonds and commodities, which posted the only setbacks for the major asset classes last week, based on a set of ETFs.
Macro Briefing: 21 March 2022
* Russia’s war on Ukraine forces 10 million-plus people to abandon their homes
* Ukraine rejects Russia’s demand to surrender city of Mariupol
* Biden to visit Poland on Europe trip this week
* Strained US-Saudi relations complicate effort to raise oil output
* US Supreme Court Justice Clarence Thomas admitted to a hospital
* European Union considers banning Russia oil imports
* Germany reports long-term agreement with Qatar for natural gas supply
* US existing home sales fell more than expected in February
* 10-year Treasury pulled back on Friday after reaching 2.20%:
Book Bits: 19 March 2022
Mary Childs
Review via The Wall Street Journal
“The Bond King” titillates with its subtitle: “How One Man Made a Market, Built an Empire, and Lost It All.” But Wall Street has a slightly different recollection of Bill Gross, co-founder, in 1971, of Pimco, the giant California money management firm. Closer to the plain truth might be: “How One Man Reimagined a Market, Built a Business, Got Rich, and Stayed Rich.” Mr. Gross, 77, was the chief investment brain, public voice and institutional face of Pimco until his exasperated partners gave him the gate in 2014.
Research Review | 18 March 2022 | Commodities and Inflation
Performance of Gold as a Financial Asset During Different Phases of Financial Cycles
Aniket Ranjan and Naveen Kumar (Reserve Bank of India)
January 2022
The paper examines the fundamental relationship between gold and financial markets within the framework of unobserved components model. It measures the performance of gold as a financial asset during different phases of financial cycles (credit, equity and property). The paper explores discrete series of peaks and troughs to determine the financial cycles across markets using a combination of Baxter-King filter and Harding and Pagan’s methodology. The paper estimates the time varying coefficients by regressing gold returns on other assets like US dollar (DXY) and stocks (MSCI) to evaluate the diversifying attribute of gold. It further explores the time-dependent relationship between gold returns and financial market characteristics like liquidity, volatility and yield spread to better understand its role as a safe haven. The results show that gold does behave like a diversifying asset and can be used as a risk hedge during turbulent times. The results illustrate that this attribute is strengthened during periods of volatility which places gold as a safe haven asset. This behaviour is also reflected in the rise of gold prices after the global financial crisis as well as the most recent Covid-19 related market upheavals.