Latest from BCA Research
Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.
Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.
Investors should not chase the rally in European defense names any further. Too much good news has been priced in too quickly.
This week, our three screeners cover equity plays in US OAS Spreads, US Exceptionalism, and “DIVE”.
Despite our bearish predisposition towards stocks, we are open-minded to anything that could challenge our thesis. As such, in this report, we review five upside scenarios for equities.
The Trump slump is nearing a temporary reprieve, with a playable countertrend rally in stocks and a tactical rebound in the dollar. Go tactically long USD/SEK. For long-term investors though, the AI bubble still has a lot of air to come out.
Notwithstanding periodic short-term rebounds, the path of least resistance for global share prices remains down. The resilience of European and Chinese stocks in the face of the US equity selloff is unsustainable. These economies will deteriorate as US demand – the sole pillar of global growth in the past two years – vanishes and tariffs bite. A new currency trade: go long MXN / short an equal-weighted basket of CAD and the euro.
The trade war complicates the Bank of Canada’s task to achieve stable inflation. But the bottom line is that rising uncertainty, which will dampen business sentiment, will cause the BoC to cut rates by at least what is priced in the CORRA curve, and likely to 2%. The CAD, which is very oversold, might not depreciate much. The big trade is a bet on a spread widening for Canadian provincial bonds.
A falling stock market and sticky bond yields represent the worst of both worlds for investors. We interrogate why bond yields haven’t dropped more given the large selloff seen in equities.
The Q4 earnings results were spectacular but are now in the rear-view mirror. Now, investors are laser-focused on tariff threats, earnings headwinds brought about by a stronger dollar, and an unhappy consumer. Our analysis of earnings commentary found that, while companies often refer to tariffs during their earnings calls, most are perplexed and still in a “wait and see” mode. A strong dollar is negative for earnings, but the recent dollar retrenchment will bring relief. Wealthy consumers are still spending, but there are early signs of stress.