BofAML: Ni subida de tipos ni rally (The Thundering Word)

Redacción - Viernes, 18 de Septiembre

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• Fed confirms deflationary recovery; sell into rallies; upside for risk mkts constrained by growth, downside protected by Fed
• If no autumn risk rally despite ultra-dovish Fed & bearish sentiment = markets hinting "recession" and/or "default" imminent
• Short-term tactics: negative for US$, banks. EM>DM, resources>banks, gold>US$, REIT>cash, growth>value decent tactical trades

The Fed Blinks

Fed admits China/Wall St threatens to reverse Main St recovery; Fed confirming "deflationary recovery" (Chart 1); risk can rally but sell into strength; upside for risk assets constrained by growth outlook, downside protected by Fed.

Fragile Wall Street + perilous China = "tactical delay" in Fed hike according to our economists; BofAML say Dec hike likely; but if no autumn risk rally despiteultra-dovish Fed & bearish sentiment = markets hinting "recession"and/or"default"imminent.

Short-term tactics: negative for US$, banks. EM>DM, resources>banks, gold>US$, REITs>cash, growth>value decent tactical trades.

Deflationary recovery means "growth", "yield", "quality" remain structurally bid; we stay long US$, volatility, real estate& stocks>bonds; but SPX>2040-2070, GT30>3.2%, DXY>97 needs stronger global growth in Q4.

Bearish risk = deflationary bust: Asia banks indicate crisis; Q3 EPS recession. FMS says Discretionary, Banks, Tech & Eurozone most at risk should peak liquidity coincide with EPS recession…SPX<1870, GT30<2.8%, DXY<93...at least until new extreme policies introduced (Fed QE4, China QE1 or a G7 shift toward fiscal policy stimulus).

Chart 1: Still the lowest interest rates in 5000 years!

Sources: Bank of England, Global Financial Data, Homer and Sylla "A History of Interest Rates" Note: the intervals on the x-axis change through time up to 1700. From 1700 onwards they are annual intervals. Full methodology available upon request

See report (attached) for further information.

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