Global Markets Podcasts

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.

Many in the oil industry are glad to see the back of what has truly been a whipsaw year. Uncertain IMO 2020 regulations. Heightened geopolitical risk premium. The once-in-a-lifetime, unparalleled COVID-19 pandemic spread collapsing demand. An all-out oil price war amongst Saudi Arabia and Russia to gain market share by flooding the world with oil supplies. Draconian lockdowns sending prices into freefall.  A historic OPEC+ phased production agreement of 9.7m b/d (~10% of global supply) to reverse course and support prices over defending market share. Finally, the dizzying risk-on momentum from the euphoria over vaccine efficacy.

Ehsan Khoman, Head of MENA Research and Strategy, contextualises the key themes that shaped global oil markets in 2020 and offers insights into how the tumultuous developments over the course of the last twelve months could have long-lasting implications as we begin to form new contours of normality towards a post-virus equilibrium.

Chair Powell put it quite succinctly in the Q&A portion of the FOMC’s Press Conference to the December 15-16 Meeting, “The combination of the Cares Act and the strong monetary policy stimulus propelled a recovery that was, frankly, far stronger than we expected back in April, May, and June.” In this much anticipated FOMC Meeting, Chair Powell covered so much ground, and in this podcast, MUFG U.S. Rates Strategist, John Herrmann, attempts to bring it all to life. 

First, over the very uncertain path of the Fed’s monthly Treasury security purchases, the Committee concluded that neither the pace (at $80.0 billion per month) nor the composition (proportionately across the yield curve) would change – matching our forecasts. Second, of the important forward guidance over the “horizon” of asset purchases, the Committee introduced “qualitative outcome-based forward guidance” that matched our predictions. Third, Chair Powell acknowledged that the coming three-four-five-months would be quite challenging – with the pandemic raging – but the growth rebound that follows would be a strong one, he believes.

Chair Powell strengthened the Committee’s projection for GDP growth over years 2021 and 2022, while lowering the projection for the unemployment rate. The Committee’s projections are not nearly as optimistic as our models forecasts, but Chair Powell is closing the gap, and catching up quickly. We commend the Chair and his Committee upon their excellent and thorough hard work in this most difficult of a year!