In this mid-quarter update, entitled “Escalation,” we discuss the backdrop of escalating trade wars and our belief that the environment is more favorable for US Treasury bonds relative to stocks.
- The trade war is escalating at a time of weakening global growth, thereby weighing further on growth.
- The CNY/USD devaluation that began last year is negatively impacting growth.
- Crude oil inventories have been building, which supports the USD.
- All facets of financial conditions appear to be tightening concurrently.
- There are some important positive changes that appear to be underway in the US, helping explain the undershoot to inflation.
- The Fed appears to be tip-toeing up to a rate cut which the US Treasury market is anticipating.
- Even though US Treasury yields have fallen significantly, we think there is scope for further declines.
To read our full analysis, please click to download Escalation.