Global Markets Podcasts

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.

This week, Lee Hardman, senior currency analyst, gives his expectations for the future of U.S. fiscal stimulus and monetary policy now the surprise results from the Georgia run offs mean the Democrats have narrowly taken back control of the Senate.

Meanwhile in the UK, the economic forecast is far from rosy; a sharp acceleration of COVID-19 cases has led to nationwide lockdowns with possible tighter restrictions on the horizon. Is it time for the Bank of England to introduce negative interest rates? Lee Hardman gives his view.

The first monthly OPEC+ meeting to decide on the group’s production ended with a ‘too good to be true’ outcome. The market abacus had tallied a 500k barrels per day increase in February. Instead, investors were positively surprised by a unilateral Saudi pledge for an eye-soaring 1m barrels per day cut for both February and March – overshadowing the formal OPEC+ decision to raise output by a negligible 75k barrels per day in the next two months. What does such a decision mean for the global markets?

Ehsan Khoman, Head of MENA Research and Strategy, contextualises Saudi’s oil strategy and gives his analysis.

We review and preview the main events of the week – as we likely may for a while – and we conclude that there are several underlying and policy developments that may continue to steepen the 2s-30s Treasury yield curve towards our models 207.6 bps objective over the coming 18 months, possibly sooner. As such, we maintain our core strategic investment stance of the 2s-30s yield curve steepener – though there remain several risks that should prevent that stance from moving in a straight line over the coming year.

Our models recently upgraded our GDP growth forecast to +5.15% yoy in 2021 (from +4.85%), and we may not be done – as the configuration of the new Congress suggests risk of not just greater fiscal stimulus over the coming five weeks, but of another dose of stimulus around mid-summer 2021.

In this episode, MUFG's U.S. Rates Strategist, John Herrmann, discusses that should our models forecasts prove accurate, the FOMC’s objective of achieving “substantial further progress… towards the Committee’s maximum employment and price stability goals” likely may be evident before year-end 2021, or early on in 2022. Might bond market participants anticipate an official FOMC announcement over “taper and cease” of asset purchase programs near that timing? We continue to think so, possibly adding a final push to the yield curve steepener.  

2021 is upon us, and kicking off the year is the Senate runoff elections. Following a tumultuous U.S. Presidential election, this is the final hurdle for Joe Biden and the Democrats to seize control over Congress.

This week, Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, looks at the polls and the potential impacts on USD and the markets. Derek also gives his view on key issues for the week, including vaccine efficacy rates as new strains of COVID-19 lead to tighter restrictions in Europe and beyond.

USDJPY fell gradually on limited downside room for JPY rates. JPY basis has started to slowly tighten as overseas traders make more JPY cross-currency flows. JPY rate swap spreads have also turned positive and started to widen. The government has started to consider declaring a state of emergency for Tokyo and three neighboring prefectures as the third wave of the pandemic worsens. On January 4, Japan stocks fell as the country’s economy makes only halting progress toward normalization in a post-COVID-19 world.

In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, reviews JPY rates and basis at the end of 2020 and the start of 2021. He also discusses the skewed JPY basis market and upward pressure on the front end of the JPY yield curve at the end of 2020. He offers his outlook for JPY rates, basis, and USDJPY.

It’s easy (and accurate) to present the 2021 oil price outlook as a V-shaped vaccine trade. What is striking about the forward oil outlook is the apparent degree of unanimity (or at least strong consensus). Indeed, the oil market appears to be singing from the same bullish 2021 hymn sheet. What is striking about the forward oil outlook is the apparent degree of unanimity (or at least strong consensus) as we embark on a new year.

Ehsan Khoman, Head of MENA Research and Strategy, offers his insights into MUFG’s oil price outlook and his thesis as to why we are not only resolutely constructive on oil prices in 2021, but in fact above consensus, forecasting Brent and WTI to average USD58/b and USD54/b, respectively in 2021, and ending the year at USD64/b and USD61/b, respectively, with upside risks to our forecasts.

On December 18, Bank of Japan Governor Haruhiko Kuroda announced that the central bank had agreed to extend pandemic response measures and will assess monetary policy, with results to be announced at the March Policy Board meeting. On December 21, Prime Minister Yoshihide Suga’s expanded JPY106 trillion budget was passed, and an increase in JGB issuances was approved. At this time, JPY rates basis and USDJPY are steady, ahead of the end of the 2020 calendar year.

In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, shares his thoughts on the BoJ’s monetary policy assessment, the Suga Administration’s FY21 JGB issuance plans, the BoJ’s USD fund buying from the MoF, and cross-border flows. He also goes through his outlook for Yen rate, cross-currency basis, and Dollar / Yen.

‘Uncertainty’ is the key theme for this week. After a huge run up in risk across global markets, a new variant of COVID-19 is bringing a number of questions, such as will the tier 4 restrictions currently placed on London and the South East of England spread to the rest of the UK? How will Europe shield itself? Are there implications for the vaccine?

Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, gives us his insights into how this news has been priced into the market and his view for the week ahead.