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Chart of the Week and Weekly Report Highlights
This week: Inflation Outlook, Policy Pivot Progress, Commodities Phase 2, Agri-Commodities, Industrial Metals, EM Sentiment, Bond Yield Breakout
This email provides a look at what we covered in the latest Weekly Insights report
The weekly insights report presents some of the findings from our institutional research service, providing entrée/entry-level access at an affordable price.
Chart of the Week — Ascending From the Shadows
Shadow Policy Rates on the Rise: Shadow policy rates are designed to factor in the effects of quantitative easing (QE). They present a view of the effective level of interest rates beyond the simple headline policy interest rate when QE is in force, and are especially useful when the headline rate is at the zero lower bound.
Comparing the shadow policy rate with the standard policy rate in the chart below we can see that below the surface the story is wildly different both with regards to previous easing, and now tightening...
Indeed, across Developed Markets the weighted average shadow policy rate has actually gone up +240bps from the low point. Hence in this respect it was only a matter of time before the vertical run in equities came to a pause.
It’s likely that we see this indicator move higher yet as QE programs are increasingly being halted, bond markets are adjusting upwards, and even headline policy rate hikes have begun (e.g. UK, Norway, NZ already: and the Fed, BOC soon). Thus as noted previously, monetary tailwinds are transitioning to headwinds.
Key point: The risk/return balance for equities has shifted as shadow rates rise.
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Topics covered in the latest Weekly Insights Report:
Inflation Information: short-term upside, medium-term taper.
Policy Pivot Progress: shifting policy means shifting risk/return balance.
Commodities: phase II of the bull market begins, we outline why.
Agri-Commodities: a review of the key technical and fundamental indicators.
Industrial Metals: changing the outlook as the evidence changes.
EM Sentiment: composite sentiment indicator for EM is starting to turn.
Bond Yield Breakout: widespread (record) weakness across sovereign bonds.
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