Even after Kuroda’s recent pushback, there seems to be widespread expectations among investors that the BOJ is likely to do more QE in the June/July time frame. Those expectations could lead to disappointment unless the economic situation in Japan unravels really fast. We give three reasons why we think the BOJ will stay the course for now and we discuss what investors’ reaction might be.
In recent months a number of US companies have bought foreign companies (particularly specialty pharmaceutical companies) and the new company ends up based overseas. Companies have been openly doing these corporate inversions for tax reasons, which have prompted a number of questions from clients. In today’s report we discuss the outlook for corporate tax reform, specifically the tax treatment of multinationals and a repatriation holiday or other changes to the treatment of income earned overseas.
The ECB has agreed to the principle that QE could be needed to stave off the risk of deflation, but not to the threshold that it would have to see in order to start it. We discuss our views on whether and when QE in Europe will happen and what it could look like (which assets the ECB would buy). We present data on the size and composition of the ABS and other QE-eligible markets in the EZ.
Mel Watt was confirmed as the new head of FHFA last fall, replacing Ed DeMarco. Press reports have indicated that Watt was aiming for April to give a major address during which he would outline his near-term agenda at the agency. As of today, no speeches have been scheduled. In this report we discuss which housing policies Watt is likely and unlikely to pursue, and the market implications.
Click here to download the slides (PDF) Main points: —Three interesting alternative explanations from clients for the low level of Treasury yields. —These explanations probably contain the upside potential for Treasury yields, but rates are still likely to head up. —Where we differ from consensus on global central banks.
If Republicans win the Senate in November, the odds increase that the medical device tax will be repealed. We discuss why we think it would have a good chance of passing and who would benefit. Also in today’s report we talk about why the individual mandate may not be enforced this year.
Aside from the decline since the beginning of the year, Treasury yields are very low. If the economy is expected to improve, QE is being phased out, and the Fed says it will start tightening next year, why is that the case? We look at the components of long-term Treasury yields to help us determine what the market is pricing in and which direction yields are most likely to go.
We present what consensus seems to be on BOJ, ECB, and Fed policy based on conversations with clients, media reports, and market prices. We then discuss where we differ from that consensus. A short table summarizes the extent of our differences.
Violence is escalating in Ukraine as Russian-backed militias have taken over local government buildings in the eastern part of the country. Russian President Vladimir Putin may be trying to destabilize Ukraine or he may be laying the groundwork for an invasion. In today’s report, we consider how the US might respond to an invasion. We also discuss a number of developments in the health care area last week (Burwell nomination, risk pool on the exchanges, Gilead and drug price controls).
Click here to download the slides (PDF) Main points: – First, a few words on the FOMC minutes: Don’t trust the news headlines. – What the three components of nominal yields are telling us. – The bond market seems to be pricing slow growth for years to come. – If growth proves itself, the bond market will have to adjust significantly.