Latest from BCA Research

Long-term drivers, including the growing ability of banks to returns cash to shareholders, point toward a strong structural performance for European financials. However, the ECB’s aggressive tightening campaign could still spoil the party.

In this report we provide an update to our August Insight on sentiment. We find that the Visibility factor now looks overbought, which is a good sign for stocks favored by the BCA Score.

From a technical standpoint, the dollar is due for a bounce. In this report, we review various indicators to gauge the magnitude and duration of this rally. We also recommend two new trades: sell the gold/silver ratio at 90 and EUR/SEK at 11.30.

The risk of a recession in 2023 is being supplanted by the risk of another inflation wave. We will turn more defensive on equities if it continues to look like inflation is making a comeback.

Special Report

High realized inventories are weighing on global oil prices. We expect oil market deficits will draw on accumulated inventories over the forecast period. Petro-state instability – arising mainly from Russia and the Middle East – is a key geopolitical trend in 2023 and will likely lead to oil supply shocks. We are revising our Brent price forecasts to $97/bbl this year and $111/bbl in 2024. Investors should brace for upward price pressure – as long as recession risks remain contained – and persistent high volatility.

Investor sentiment on China and EM has become bullish. Meanwhile, the reflation plays have begun fraying on the edges. Cracks always appear first in the most sensitive reflation plays and then spread to the core. The narratives of the Fed's imminent pivot and China's recovery will be questioned in the coming months. Thus, China/EM assets and related plays will sell off, and the US dollar will rebound.

Core CPI rose sequentially in January compared to December, but we don’t see this as the beginning of a new trend. Disinflation is very much still in the cards for the US economy between now and the end of the year.

Thai stocks and currency will weaken over the short term. And yet EM equity portfolios should overweight Thailand as tourism revivals will rejuvenate this economy.

The backdrop for corporate bonds is turning more risky after the spread tightening seen over the past few months in the US and Europe. A tour of our favorite corporate spread valuation metrics on both sides of the Atlantic suggests a worsening cyclical risk/reward tradeoff for both investment grade and high-yield bonds, especially in the US.

We discuss the outlook for the Fed’s balance sheet and why QT is likely to continue for at least another year.