Quick Take: Key Takeaways From The BOJ Surprise Increase in QE

The BOJ surprised most analysts (me included) today with the announcement of a step up in the pace of QE. Here are some quick thoughts about future implications for Japanese and global policy as well as markets. 1. Inflation and inflation expectations are the key to gauge future BOJ moves.Today’s decision most likely was made because the BOJ’s outlook for inflation dropped to uncomfortably low levels in a context of declining inflation expectations. The BOJ has room to do more and may do so if inflation and inflation expectations move further away from the BOJ’s target of 2%. 2. Kuroda … Read More »


Roberto’s Video Update: Is An Inverted Yield Curve In Our Future? Possibly, And We Shouldn’t Worry About It ​​​​

Main Points: – As the Fed stays its policy course, the market should start believing the Fed’s message more. – If and when that happens, the yield curve should flatten significantly. – Under what conditions could the yield curve invert? – Inversions of the yield curve are not necessarily ominous signs for the stock market and the economy. – An inversion in the upcoming Fed cycle would probably not imply a reversal in the direction of the S&P. Click here to download the slides (PDF)


What Investors Need To Know Before Next Week’s Election

Today’s report is a compilation of our election-related research in which we summarize the policy implications of a GOP Senate as well as a status quo outcome. We also provide links to the reports we’ve written during the past few months that give more detail on the important topics. Here are the key takeaways: *We don’t expect far-reaching reforms such as tax reform or a major budget deal to pass regardless of who wins the Senate, so the overall market impact of the election should be muted. *Republicans are favored to win a majority in the Senate, which would be … Read More »


The Fed’s Next Move? It’s (Almost) All About The Labor Market

Predictably, the FOMC decided to stay the course yesterday in spite of recent market turmoil and concerns about global growth and low inflation. The reason is that the US economy is doing just fine and is likely to continue to do so. In today’s report we discuss which economic data to watch to gauge future Fed policy action, when the Fed is likely to change its “considerable time” language, and when the Fed is likely to begin hiking rates.


Webinar REPLAY: What Will The Fed Do Amid The Global Slowdown? Quick Reaction To The October FOMC Meeting

To View The Replay, Please Click Here Slides Available – Please Click Here Hosted By Roberto Perli


Sticking With 70% Odds Of A GOP Senate

The election is now less than a week away, and the evidence continues to suggest pretty high odds the Republicans will win a majority in the Senate. We’re sticking with our 70% odds. Looking at our election portfolios, the market is arguably beginning to price in a GOP Senate, as the Republican portfolio is outperforming the Democratic portfolio. This makes sense as the investor consensus (as well as the general consensus) has been moving toward our odds during the past several weeks. We also look at the gubernatorial races in today’s report.


What The Market Is Telling Us About Fed Policy Expectations

The trajectory for the federal funds rate that market seems to expect has moved down a lot this month. But does the large movement reflect a genuine reassessment of expectations as to what the Fed will do or was it at least in part caused by positioning? In today’s report we show that the total number of net short ED futures contracts dropped sharply and the decline was concentrated among leveraged investors. This suggests that either capitulation or short covering played a role. As such, the market outlook for Fed policy may not have changed as much as it appears … Read More »


Will Big Things Get Done In The Next Two Years? Three Signs From Obama To Watch

While there are some things that are likely to get done in the next two years that matter to investors, especially if the GOP takes the Senate, we’re skeptical of comprehensive reforms such as a major budget deal, tax reform, housing finance reform, etc. that could be extremely important to financial markets. To be sure, there are major differences between the two parties on these issues that are difficult to bridge. Even more important, President Obama has not actively worked with key members of Congress to bridge the differences. But a president always has the ability to reset the agenda, … Read More »


Roberto’s Video Update: What To Expect From The FOMC Meeting And Potential Market Implications

Main Points:
- Fed likely sees risks to US growth, but it probably hasn’t changed its outlook yet.
- How might the FOMC statement change next week?
- Market expectations of fed funds rate have dropped a lot.
- If FOMC doesn’t validate these expectations, policy expectations could backup.
- History shows stocks are volatile after large drops in expectations. Read More »


Large Drop In Fed Funds Expectations Could Lead To Disappointment

Market expectations for the trajectory of the federal funds rate have dropped a lot in the past three weeks – it was the fourth largest drop in the past five years.  But while previous large drops were caused by either a major crises or specific Fed actions, the current drop seems outsized given the absence of a major catalyst.  If market expectations are not validated by a dovish FOMC statement next week, the risk is that policy expectations would back up, causing temporary ripple effects across markets.  The stock market tends to be much more volatile than normal in the … Read More »