Raising Our Odds Of A Republican Senate & GSE Court Decision

After almost no movement in the polls for the past several months, during the past week or two a number of polls have begun to show movement toward Republicans. Given a wide variety of indicators, including President Obama’s poor job approval rating, we have been expecting some of the close races to break toward Republicans, which is why we had placed 60% odds of a Republican Senate. Now that actual poll results appear to be validating our instincts, we’re raising our odds of a GOP Senate to 70%. A GOP Senate would be positive for the oil and gas industry, … Read More »


Size Of ECB Balance Sheet Crucial For Currency Market

The euro began its recent slide in August when EZ growth data disappointed and Draghi signaled openness to QE in Jackson Hole. The currency market is essentially pricing in a substantial expansion of the ECB balance sheet. We will get more clarity on what’s reasonable to expect in terms of the size of the ECB balance sheet on Thursday at Draghi’s press conference. In today’s report we show the relationship between the size of the balance sheet and value of the euro, list the measures that will affect the size of the balance sheet, and discuss what expansion of the … Read More »


October Election Could Be Next Flashpoint In Ukraine

Events in Ukraine have fallen off the front pages since the signing of the cease fire, but there are reasons to be cautious about the outlook. The October 26 parliamentary elections in Ukraine could be the next flashpoint in the conflict with Russian-backed separatists. Increased tensions could lead to more risk aversion among investors, reduced expectations for European economic growth, and put downward pressure on crude prices.


Roberto’s Video Update: Stronger Dollar And Low Breakevens – What Will The Fed Do?

Main Points:
- How does a stronger dollar change the Fed forecast?
- How should investors think about the drop in breakevens?
- The increase in real rates is encouraging.
- How is the Fed likely to react to dollar and breakevens? Read More »


GOP Retains Edge For Senate

Republicans retain an edge to win the Senate and the polls generally look to be moving their way slightly, which is what one would expect given Obama’s poor approval rating. The generic ballot in particular has moved toward Republicans during the past few weeks. In today’s report, we take a look at the Senate math and provide a rundown of various races.


ECB Balance Sheet Expansion – How Much And How Fast?

Next week the ECB will unveil the details of its ABS and covered bond (CB) purchase programs. The total amounts outstanding of these types of securities are about €2.5 trillion. However, the ECB is likely to target only a fraction of those. Considering that the original LTROs are maturing later this year and early next year, the net expansion of the ECB’s balance sheet is likely to be small in the absence of a large-scale QE program that includes government securities. The odds of such a QE program are growing. To assess the moving odds, we would watch inflation data, … Read More »


What Comes Next On Tax Inversions?

The Treasury issued rules designed to reduce the economic value of inversions on Monday night. So what comes next? We consider possible legal challenges, the congressional reaction, and the possibility of additional rules by Treasury in today’s report. We also note that several people are considering throwing their hat into the ring in 2016.


The Recent Drop In Inflation Compensation: Ominous Or Benign?

Spot breakeven rates have plunged of late. This could be a sign that the bond market is nervous about the Fed making a mistake by tightening policy next year, or it could be a natural consequence of the fact that oil and other commodity prices are dropping. We show that overall bond market data strongly argue in favor of the second alternative. That is a very favorable scenario for the equity market. We also note that Treasury released new rules last night aimed at targeting inversions. The regulations appear to be modest in scope.


What A Democratic Senate Would Mean For Investors

Although some election modelers have reduced the odds of a Republican Senate, we’re keeping our odds at 60%. However, given that the Democrats could very easily maintain a majority in the Senate, it is worth considering what such an outcome could mean for investors. Obviously, since a Democratic Senate (and a Republican House, which is a given) would represent a status quo outcome, one should not expect a big change in the policy outlook. Nevertheless, we highlight the issues where Democrats may get more traction and that could have a better chance of becoming law.


Roberto’s Video Update: What’s Next For Rates After The FOMC? (With A Connection To Europe)

Main Points:
- What did the FOMC do this week?
- What should investors pay more attention to?
- Where are market expectations relative to the Fed’s?
- What would happen to bond yields if the market catches up?
- What does a decline in the term premium signal? Read More »