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Daily roundup of relevant research and analysis from The Globe and Mail’s market strategist Scott Barlow

Citi economist Pernille Henneberg published a helpful report detailing what Federal Reserve rate will and won’t do for the global economy and markets,

“We are already forecasting nearly the weakest global growth since the Global Financial Crisis and more downgrades will follow as the virus is spreading and real economic data will be affected … The Fed returns to its role as global central banks with its unexpected easing being more important for the rest of the world than for the US itself. The positive ramifications follows as US financial conditions are dominating global financial conditions and the US dollar is key risk driver for EM capital flows. The Fed easing was not yet needed from the perspective of the US domestic economy, but it was warranted due to a high economic exposure to the uncertainty shock. More central bank easing will be needed, when real economic data start to weaken, but health measures and fiscal easing would also help reduce the high degree of uncertainty.”

“@SBarlow_ROB C: "More central bank easing will be needed, when real economic data start to weaken" – (research excerpt) Twitter


Nomura Research published a 67-page report on the coronavirus and the economy with the disquieting title “The worst is yet to come” (my emphasis),

“In our new base case, we revise down further our Q1 2020 GDP growth forecast for China to 0% y-o-y, and for the world to 0.9%. We still envisage a V-shaped global recovery in Q2 in our new base case … In this abnormal economic slump, macroeconomic policies are less well equipped to help (or “can only help so much”). If health security controls fail to contain the spread of COVID-19, financial markets may soon have to accept that a global recession is a forgone conclusion.”

“@SBarlow_ROB Nomura, "The worst is yet to come"” – (research excerpt) Twitter


Bespoke Investment Group highlighted the tremendous rally in U.S. Treasury bonds,

“With the yield on the 10-year dropping to a record low of 1.0% yesterday, there hasn’t been a much better asset class than long-term US treasuries over the last year. Using the BoA 10+ Year US Treasury Index as a proxy, long-term US Treasuries have rallied more than 32% on a y/y basis. Going back to 1988, there have only been 14 other trading days where the y/y change was higher, and they were all in late 2011 and mid-2012. On a percentage basis, that works out to just 0.17% of all trading days.”

Domestic bonds have seen similar rallies. The plunge in yields explains the strong performance of bond proxy equity sectors – utilities, consumer staples, and real estate.

“@SBarlow_ROB Bespoke :10Y Ts up 32 % yoy” – (chart) Twitter

“Emerging-markets investors are thinking outside the box.....and buying Treasuries’ – Bloomberg

“Is data this deflationary?” – FT Alphaville (free with registration)


In a separate report from Citi, strategist Li Hong warned investors that low volatility U.S. sectors listed just above are becoming dangerously crowded and expensive,

“REITs and Utilities remain the most crowded sectors after late February’s flight to safety. This is consistent with Low Beta remaining the most crowded factor but speaks to asymmetrical downside risk for Low Beta here … The key metrics that indicate crowding in Low Beta include a higher valuation (Fiscal year price to earnings] that has stretched to 40-year highs, short interest that continues to stay low in Low Beta stocks, and macro risk that is back to record-high levels… “

“@SBarlow_ROB C: REITs and utes remain “the most crowded factor but speaks to asymmetrical downside risk for Low Beta here” – (research excerpt) Twitter


Newsletter: “Cataclysmic projections are everywhere in financial media” – Globe Investor

Diversion: “This tiny, living, and programmable organism could be used for everything from carrying medicine inside our bodies to cleaning up the world’s oceans” – QuickTake

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