Global Markets Podcasts

The Suga Administration has applied its state of emergency to 11 prefectures, but uncertainty about COVID-19 remains. With the inauguration of the new U.S. administration, risk sentiment has continued to improve keeping U.S. and Japanese stock markets calm. Downside room for yen rates is limited, and yen basis is steady. The dollar/yen rate has stayed in a narrow range. The Bank of Japan’s January Monetary Policy Meeting made no policy changes. Decisions appear to be on hold until the monetary easing assessment comes out in March.

In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, discusses the BoJ’s January monetary policy meeting, policy board personnel, U.S. TIC data, and recent cross-border flows. He also shares his outlooks for dollar/yen, yen rates, and yen basis.

In today’s podcast, Lee Hardman, currency analyst, looks at the upcoming FOMC meeting and how this will be important for the dollar performance, giving his views on the likelihood of Chair Powell giving any signal of slowing of QE.

On the upside, the pound has been outperforming with cable rising above the 1.3700-level. The pound is tightly linked to the general improvement in risk sentiment with Global Equity Markets having risen to near record highs. This shows hopes for recovery in the second half of 2021, a welcome break in the clouds in what has been a dreary start to the year for the UK.

This week heralds a new chapter in the world order with Joe Biden becoming the 46th U.S. president. A life-long pragmatist, he looks likely to govern as one. Stylistically, that signals greater predictability, higher consistency, with a less transactional and a more rules-based multilateral approach.

Notwithstanding the reduction in risk premia across global markets, Ehsan Khoman, Head of Emerging Markets Research (EMEA), believes that the implications of a Biden presidency for emerging markets (EM) in the EMEA region are likely to be more nuanced than they may seem at first glance. Granted, a pivot towards a mix of political realism, mutual interests and democratic principles will shape the incoming administration’s strategy towards EM EMEA, but Biden’s team will need to work under the same constraints as those under Trump – the result of which will be that changes could be more subtle and less abrupt than widely anticipated.

In today’s podcast, MUFG U.S. Rates Strategist, John Herrmann reviews his models arguments over the five economic tailwinds for the U.S. recovery in years 2021 and 2022. Even with a timely rollout of vaccinations, there remains lingering, yet quite pronounced, structural deficiency within the economy. Namely, a labor force that was depleted by nearly 3 million individuals over the entire year of 2020, the largest annual decline in the labor force for any year since 1945, and by a wide margin.

The economy over the near- and longer-term beckons for fiscal policy to remain both activist and aggressive, we believe.

Higher U.S. yields have not been tightly correlated to Japanese yields, but they have started to exert a gentle effect. While Japanese non-manufacturers have been hit by uncertainties surrounding the COVID-19 pandemic, Japanese manufacturers are enjoying a recovery for exports and production. The real economy and financial markets have not been moving in tandem. USDJPY, JPY rates, and JPY basis have remained in tight ranges, reflecting risk management mode amidst the pandemic despite a large pick up in cross-border flows at the start of 2021.

In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, dissects cross-border flows at the end of 2020 and the beginning of 2021. He also shares his outlooks for Dollar/Yen, Yen rate, and Yen basis.

All eyes are on the U.S. this week, where Joe Biden will be inaugurated as President on Wednesday. Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, believes the markets will remain steady due to no expectations of social unrest.

This week, Derek talks through the priorities for Biden and his administration, including tackling the pandemic head-on and the related fiscal stimulus package; trade policy and rewriting “the rules of the road"; and executive orders to reverse some of the steps taken by President Trump.

Cyclical headwinds, policy limits and the legacy of the 2020 contraction will weigh on much of the emerging market (EM) countries in the EMEA region for years to come, with structural constraints placing a cap on the recovery.

Notwithstanding the current challenging environment which has been amplified by the obstructive virus resurgence, Ehsan Khoman, Head of Emerging Markets Research (EMEA), believes that the contours of a post-virus equilibrium are coming into sight, with commodity prices rebounding, deficits narrowing and funding flows remaining robust.

This favourable backdrop leads him to remain constructive on the outlook of the EM EMEA region in 2021, with growing conviction that after a painful 2020, and a first quarter COVID-19 winter speed bump (which will delay not derail the recovery), risks are now weighted to the upside.

In this episode, MUFG Head of Agency Mortgage Strategy and Prepayment Modeling, Glenn Schultz, discusses MUFG’s 2021 forward outlook in prepayment speeds, mortgage origination volumes, primary and secondary spreads, and investor appetite.

Both the press statement and the minutes from the December FOMC meeting make the end of the Fed’s asset purchase program pretty clear: the official “taper and cease” program is conditional upon the economy attaining “substantial further progress toward the Committee's maximum employment and price stability goals.”

The latest December employment report fits quite well with MUFG’s U.S. Rates Strategist, John Herrmann's view that the U.S. economy is on track to attain: (a) a complete recovery to the aggregate level of real GDP by mid-summer 2021, (b) full year growth of +5.7% YoY in 2021, (c) a +4.2% U3 unemployment rate by year-end 2021 and (d) the economy adding a net +6.1 million new jobs by year-end 2021.

By the end of the 3rd Quarter 2021, and possibly sooner, most investors are likely to believe that an official “taper and cease” announcement may occur prior to the end of the year. Unlike in 2013, however, we believe that most investors will not wait until the FOMC unveils an official “taper and cease” announcement to invest and trade it. Hence, our core strategic investment stance remains a 2s-30s Treasury yield curve steepener. Investors desirous of a little extra optionality from, say, mortgage convexity selling in the spring and a little extra juice, may consider a 2s-10s Treasury yield curve steepener, we believe.

Now that the U.S. Presidential and Congressional election results have been confirmed, the U.S. yield curve is likely to steepen over the near-term. Japanese investors will have to adjust their developed economy bond portfolios, not only with U.S. Treasuries, but also European bonds and JGBs. Developed economy stock markets have reacted favorably to the confirmation of results of the U.S. elections. The BoJ’s ETF purchases are clearly helping to drive the Nikkei Average upward. Meanwhile, the COVID-19 pandemic is growing more serious and on January 7, Prime Minister Yoshihide Suga declared a state of emergency for the Tokyo area. The spotlight will be on the government and BoJ’s pandemic support measures, and investor behavior could change. Understanding fiscal and monetary policy will be key to prognosticating the next trend for JPY cross assets.

In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, discusses developments with fiscal financing, the BoJ’s monetary operations, and the monetary base in December and what they could mean for the BoJ's monetary policy review in March. He also shares his outlooks for USDJPY, cross-currency basis, and JPY rate.