Weekly Note: China – An Evolving Risk

Weekly Note: China – An Evolving Risk

Until last Friday’s headline regarding the Mueller investigation, US equities had posted new all-time highs on every benchmark, powered by boomy data (global manufacturing PMI made a near seven-year high) and expectations of tax reform. With each week of equity gains, we have maintained that non-US equities can rise further on their respective domestic earnings momentum for 2018, and that DM bonds could enter a broad bear market next year even if tax reform fails. These remain core views, and thus there is no change in strategy despite this week’s headline barrage from Washington.

The Mueller investigation will likely remain a source of recurring but random market stress because it can distract the Beltway from a potentially transformative policy agenda. Those looking for asymmetric hedges against an adverse outcome should consider selling USD vs JPY, as the yen already has an upward bias in 2018. This is, of course, only true if our view that the BoJ will lift its yield curve target as core inflation rises is correct.

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GM360 Note – 8th December 2017


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Categories: Daily Note