The MUFG Global Markets Podcast

Japanese lifers return to JGBs while eyeing U.S. credit and global alternative investment opportunities: The MUFG Global Markets Podcast

Japan's major life insurance companies recently released investment plans for the second half of fiscal year 2020. MUFG's Takahiro Sekido notes three themes: (1) a return to JGBs; (2) an interest in alternative investments and spread product; and (3) careful selection of foreign bonds that lack appeal when considering the need for improved asset efficiency and despite low FX hedging costs. Concurrently, the start of the second half of the fiscal year has seen uneventful price action in Japanese financial markets with JGBs, Dollar/Yen, and Dollar/Yen cross-currency basis all flat. Japanese investors were doing little more than adjusting positions ahead of the U.S. presidential election, so there was nothing to drive a JPY weakening. At the same time, cross-currency basis was favorable for JGB buying, and overseas investors turned to JGBs as a short-term USD asset management product, and fund flows did not push JPY higher. These mixed flows kept Dollar/Yen in a narrow range on the eve of the U.S. elections.
In this episode, MUFG Chief Japan Strategist, Takahiro Sekido, discusses Japanese lifers’ investment plans for the second half of fiscal year 2020 and their implications on JGBs, Dollar/Yen, and Dollar/Yen cross-currency basis.
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Winter is coming: The Global Markets FX Week Ahead podcast

With a sharp acceleration in the number of COVID-19 cases globally, and a raft of new restrictions for several major European economies, the outlook is darkening for Q4. Lee Hardman, currency analyst at MUFG, notes that despite the doom and gloom, there may be some light at the end of the tunnel. With positive Brexit talks suggesting a trade deal is nearing agreement between the UK and the EU, sterling seems to be performing well.
Elsewhere, the hotly debated US election is finally coming to a head. While Joe Biden is ahead in the polls, Donald Trump still has a narrow path to re-election. Lee believes this would be a surprise for markets, but it’s certainly within the realm of possibilities.
Disclaimer: www.mufgresearch.com (PDF)

Seeking JGB, Samurai bond, Dollar / Yen cross-currency basis, and FX opportunities at the start of Suga’s inaugural extraordinary Diet session: The MUFG Global Markets Podcast

It’s a busy week in Japanese financial markets! An extraordinary Diet session was convened on October 26 and will last for 41 days through December 15. On October 22, committees comprised of both the ruling and opposition sides confirmed nine bills and one treaty to be addressed during this session. Prime Minister Yoshihide Suga, in his policy speech at the start of the session, proclaimed that his Cabinet is one that works for the people. Later this week, the BoJ will conclude its October policy meeting. Understanding the administration’s priorities as well as the next moves from the BoJ are key for any investor!
In this episode, MUFG’s Chief Japan Strategist, Takahiro Sekido, discusses Suga administration’s policy challenges, the October BoJ meeting, and gives a Yen Samurai primary market update. He also details implications, and his views for Dollar / Yen, Dollar / Yen cross-currency basis, and Yen rate.
Disclaimer: www.mufgresearch.com (PDF)

Double dip recession woes for Europe: The Global Markets FX Week Ahead Podcast

The shocking acceleration of new COVID-19 cases in Europe are prompting countries such as Spain and Italy to introduce new measures such as curfews – but what does this mean for the economy?
In this episode, Derek Halpenny, Head of Research for Global Markets EMEA, explains why previous hopes for a ‘V’ shaped recovery are now being replaced with fears of a double dip recession and gives his market forecast ahead of the upcoming ECB meeting on Thursday.
Disclaimer: www.mufgresearch.com (PDF)

Next week's GDP report to show a robust rebound in growth...but then what?: The MUFG Global Markets Podcast

MUFG's John Herrmann has revised his tracking estimate for 3Q-2020 real GDP growth to +35.5% q/q SAAR (previously, +39.7%). Although lower, the forecast is still higher than Bloomberg consensus of +32%. If John's forecasts prove accurate, they suggest that the level of real GDP may be fully recovered to its pre-pandemic level by July or August of 2021. That outcome would be 6 to 9 months sooner than the FOMC’s projections and the consensus estimates. Could such a rapid recovery to real GDP, to the unemployment rate, and to inflation influence investor sentiment and positioning to further steepen the 2s-30s Treasury yield curve towards 191bps over the medium-term? Fiscal stimulus remains the wild card but you might be surprised to learn that likely offers upside to these forecasts!?
In this episode, MUFG U.S. Rates Strategist, John Herrmann, takes listeners through the details of his tracking estimate for 3Q-2020 GDP. He discusses his more medium-term outlook and the role fiscal stimulus plays. He also explores the implications of those forecasts on his investment thesis, the 2s30s yield curve steepener.

Optimism in the September BoJ Tankan survey, large buying of EUR-denominated bonds, and rotation into USD spread product: The MUFG Global Markets Podcast

The improvement in the diffusion index and large manufacturers’ expectations contained in the September Tankan survey was welcome news. That, however, comes at a time when the coronavirus pandemic may be re-accelerating globally, not to mention amid the uncertainty of the U.S. election and additional fiscal stimulus. Recent data shows an evolution in Japanese investment into foreign bonds while global affluent fund flows keep key currencies and interest rates in a narrow range. Risk aversion could result in Yen-strengthening stresses if the uncertainty ahead of the U.S. election grows. Investors should be watchful of growing JPY strengthening pressures against other key currencies.
In this episode, MUFG’s Chief Japan Strategist, Takahiro Sekido, discusses Japanese companies’ views of the economy as memorialized in the September BoJ Tankan survey, cross-border flows, and his views for Dollar / Yen, Dollar / Yen cross-currency basis, and Yen rate.

Currencies run for cover: The Global Markets FX Week Ahead Podcast

Safe haven currencies – USD, JPY and CHF – have outperformed in recent weeks as markets become more cautious about the global economic outlook, particularly in light of the sharp surge of COVID-19 cases in Europe, and the lack of optimism for agreement on a fiscal stimulus package ahead of the US election.
The pound is also one of the better performing currencies, despite more Brexit chaos following failed talks on a UK/EU trade agreement at last week's EU summit. Why is this? Lee Hardman, currency analyst at MUFG, explains on this week’s podcast.
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Brace yourselves for another rapid decline in the unemployment rate: The MUFG Global Markets Podcast

Brace yourselves. MUFG's John Herrmann just revised down his already low (U3) unemployment rate forecast to plunge to 6.25% by year-end 2020 (currently, 7.9%) and to 4.0% by year-end 2021 (our previous forecast, 4.6%). That only increases the gap between MUFG, the consensus, and "official" estimates like the FOMC and the IMF. Our updated forecasts are at least 150 bps lower than either the consensus estimate or the FOMC’s projections – not to mention that our forecasts are lower (by at least 40 bps) than every other estimate in the entire Bloomberg survey! As we are well aware, now, John Herrmann's growth expectations are similarly more optimistic. How will the FOMC and the yield curve react if MUFG's forecasts play out? Over the coming six to twelve months, as market and FOMC participants recalibrate their own expectations for the U.S. economy, might Treasury markets undergo a “mini” taper tantrum by late spring or early summer 2021?
In this episode, MUFG U.S. Rates Strategist, John Herrmann, reviews his revised unemployment rate forecast as well as discusses GDP and inflation forecasts. He also explores the implications of those forecasts on his investment thesis, the 2s-30s yield curve steepener.
 

U.S. election enters the final stretch: The MUFG Global Markets Podcast

With three weeks until Election Day on November 3, millions of Americans are already voting – in person and by mail. Polls show a sustained and recently growing lead by former Vice President Biden, but the impact of the COVID-19 pandemic on how votes will be cast and counted remains unclear. A win by President Trump cannot be ruled out.
In this episode, Jordan Heiber, Deputy Representative in MUFG’s Washington DC Office, looks at the state of the race, the risk that we may not know the outcome on election night, and the policies and priorities that investors should expect from Washington in 2021.

Deal or no deal? The Global Markets FX Week Ahead Podcast

The prospect of economic growth in the UK is darkening, with figures showing a less than impressive level of growth for August. In this episode, Lee Hardman, currency analyst, outlines the rocky road ahead for the pound.
The markets are currently pricing in an optimistic scenario for Brexit negotiations ahead of the EU leaders' summit on Thursday, but will this positive momentum be dampened by the surge of COVID-19 cases in the UK?
Listen now for Lee’s forecasts for GBP and USD as Biden continues to take the lead in the election polls.
Disclaimer: www.mufgresearch.com (PDF)

A jobs slowdown or just another Bureau of Labor Statistics mismeasurement?!: The MUFG Global Markets Podcast

Total U.S. nonfarm payrolls gained only +661.0K mom in September, weaker than John Herrmann's forecast and the consensus estimate. In contrast, private nonfarm payrolls gained +877.0K mom, stronger than his forecast and the consensus estimate. As John previewed, the Bureau of Labor Statistics did, in fact, under-count total education staffing, especially at K-12 public schools.
The especially “poor” September Repose/Collection Rate (just 70.4%) points to risk of a +225.0K to +325.0K upward revision to the September total nonfarm payroll outcome over the coming two monthly reports. The October monthly report likely may see a large gain in education payrolls as well. Lastly, the September report saw yet another big move down in the unemployment rate – spot on to John’s forecast of 7.9%. This decline partially reflects some 772.8K individuals who incorrectly reported themselves as “employed, but absent from work (other reasons)” – which suggests that the U3 rate for the month of September really may be as high as 8.3%. How is an investor to interpret these mixed messages?!
In this episode, MUFG U.S. Rates Strategist, John Herrmann, reviews a mixed September employment report, including his forecasts for non-farm payrolls and the unemployment rate versus the actual results. He also puts this in perspective versus the 38% rebound in growth he's expecting to occur in the 3rd quarter and discusses the steepening of the 2s-30s Treasury yield curve towards 191.1 bps target over the coming eighteen months.
Disclaimer: www.mufgresearch.com (PDF)

What do samurai swords and prepayment speeds have in common?: The MUFG Global Markets Podcast

MUFG’s Glenn Schultz discusses MUFG’s proprietary machine learning prepayment model and walks listeners through the relevant issues that mortgage investors should be paying attention to while surveying the prepayment landscape.
In this episode, MUFG Head of Agency Mortgage Strategy and Prepayment Modeling, Glenn Schultz, breaks down the impact of technology, the new adverse delivery fee, hardship forbearance, and delinquency buyout extension on prepayment rates going forward. He also dives into MUFG’s rate forecast and what this means for the 30-year mortgage rate going into 2021.
Disclaimer: www.mufgresearch.com (PDF)

Trump, COVID-19 and the markets: The Global Markets FX Week Ahead Podcast

U.S. politics is still front of mind following President Trump’s diagnosis of COVID-19 last week. This development sent shockwaves through the markets, and could have repercussions for the upcoming election.
Derek Halpenny, Head of Research for Global Markets EMEA, gives his analysis of the situation and considers whether Biden has an advantage going forwards.
Also this week, Derek looks at possible scenarios for the UK’s economic recovery based on past data from the 2008 financial crisis. Spoiler alert: it’s far from optimistic. Listen here.
Disclaimer: www.mufgresearch.com (PDF)

Another robust employment report? For how much longer?: The MUFG Global Markets Podcast

MUFG's John Herrmann is expecting yet another better than consensus gain in headline payrolls in the month of September. He's also expecting a larger than expected fall in the unemployment rate...sound familiar?! Undercounting of education workers represent down-side risk to his forecast, although this would likely be caught in subsequent monthly revisions. Lastly, with the flurry of announcements about pending corporate layoffs, for how much longer can this good news last? John outlines the path forward.  
In this episode, MUFG U.S. Rates Strategist, John Herrmann, previews the September employment report, including his forecasts for non-farm payrolls and the unemployment rate. He also discusses, more generally, why he's more optimistic on employment and growth than the consensus, the Fed, and other official forecasts.
 
 

Backtesting exchange traded funds purchases under Abenomics for the benefit of “Suganomics”: The MUFG Global Markets Podcast

Japanese Prime Minister Yoshihide Suga’s administration is only weeks old, but it is already clear the new administration will continue Abenomics and push for the structural reforms that were never enacted. The Tokyo markets underwent structural changes during the nearly eight years of Abenomics, and overseas investors have been making more JPY cross-currency arbitrage trades while Japanese companies and investors have been acquiring more overseas assets. What is in store for Tokyo markets under “Suganomics”? More locally, stock prices have dropped, and the JPY has strengthened recently as the coronavirus pandemic has flared up again in Europe. Speculation has been simmering in the market that Prime Minister Suga will dissolve the Lower House and hold a general election. What is in store for USDJPY, JPY rate, and USDJPY cross-currency basis?
In this episode, MUFG Chief Japan Strategist, Takahiro Sekido, tests market reaction to the Bank of Japan’s exchange traded funds purchases during Abenomics and takes a look at USDJPY, JPY rates, and JPY basis as “Suganomics” enjoys its honeymoon period.

Global markets poised for Trump vs Biden: The Global Markets FX Week Ahead Podcast

Tomorrow is the first live debate between Donald Trump and Joe Biden and marks five weeks until the U.S. election. History indicates television debates don’t have an integral influence on election results, but Derek Halpenny, Head of Research for Global Markets EMEA, gives his FX forecast for the week as he explains why if there was ever a year to buck this trend, this could be it.
With the markets pricing in the prospect for an unresolved election and a contested outcome, and not to mention the rocky road ahead for GBP as it grapples with ongoing UK-EU trade negotiations, the MUFG market research team share their trade ideas for what is set to be a volatile few months in the markets. 

Is the Phillips curve dead in the Fed's new monetary policy framework?: The MUFG Global Markets Podcast

Over the past four weeks, the FOMC continues to deliver what appears to be a forceful, seminal shift in their monetary policy framework. The Committee has strengthened its maximum employment mandate, elevating its stature to be a vibrant, durable, broad-based, and inclusive one. 12 years of erroneous predictions has inclined the pragmatic Chair Powell to dispose of many of the features of the Phillips curve thinking within the Fed’s inflation models and to relegate it’s importance upon the indicator dashboard. This shifting of emphasis within the new framework likely may lead the U3 unemployment rate to decline all the way to 2.604% by year-end 2024 (a 100-year low!) – according to our models forecasts. Still, there remain many unanswered questions, but a deeper understanding of the new framework is a must for any investor.
In this episode, MUFG U.S. Rates Strategist, John Herrmann, continues to try to enhance listeners’ understanding of the Fed's new framework.

Markets brace for mix of cross-currents: The Global Markets FX Week Ahead Podcast

A mix of cross-currents are threatening to turn the tide for the FX markets. COVID-19 is back in focus in the UK, with the growing likelihood of new lockdowns sending the pound into underperformance.
The threat of negative interest rates is also looming, and Derek Halpenny, Head of Global Markets Research for EMEA, gives his forecast for when these could be potentially implemented. Stateside, the passing of Justice Ruth Bader Ginsburg has opened a seat on the Supreme Court, giving way to an escalation in partisan politics. What does this mean for the dollar? Listen below for more.

Monetary policy with "employment as a broad based, inclusive goal": The MUFG Global Markets Podcast

The FOMC recently concluded its first meeting under the new monetary policy framework announced less than a month ago. As expected, the meeting was a seminal one! Chair Powell and the rest of the Committee sent a powerful message that they will target inflation above 2% for "some time" to achieve its new "average" goal. That's significant, especially when maximum employment means more than just a low U3 unemployment rate. How is an investor to navigate these uncharted waters?
In this episode MUFG US Rates Strategist, John Herrmann, breaks down the September FOMC meeting in light of the Fed's new monetary policy framework and tells listeners what it means for his core strategic investment stance for a 2s-30s Treasury yield curve steepener.

USDJPY, JPY rate, and JPY basis in the “Suga era”: The MUFG Global Markets Podcast

It was only a little over a year ago that Emperor Naruhito acceded to the Chrysanthemum Throne, beginning the Reiwa era. This week marks yet another new period for Japan, following the election of Yoshihide Suga as leader of the Liberal Democratic Party this past weekend. Japan’s next Prime Minister will be announced on September 16 and a new Cabinet launched. USDJPY has traded in a narrow range recently. With the Obon summer holidays over, Japanese and overseas investor flows have been oddly mixed and balanced ahead of the end of the quarter, and market pricing has remained in a narrow range.
In this episode, Takahiro Sekido, Chief Japan Strategist of Global Markets Research, MUFG Bank Tokyo discusses Japan’s new administration, cross-border flows, and his views on USDJPY and JPY rates and JPY basis. 

No-deal Brexit fears send the pound spiralling: The Global Markets FX Week Ahead Podcast

The pound took a big hit last week as no-deal Brexit fears built, bringing a period of GBP outperformance to an abrupt end. As UK-EU negotiation tensions continue and with the UK government threatening to override the Brexit withdrawal deal, Lee Hardman, currency analyst, gives his take on what is in store for sterling.
Over the pond in the U.S., the FOMC convenes this week; looser monetary policy is on the cards, but listen to hear how various scenarios may play out in the markets.  

Can employment gains drive the unemployment rate to a "six-handle" by year-end?: The MUFG Global Markets Podcast

August total non-farm payrolls came in at +1,371K mom, near to the consensus estimate of +1,350K mom but shy of our models forecast of +1,576K mom. Details of the establishment survey suggest that systematic sampling features may have biased down the reported payroll gain by 300K to 400K. It is likely that the employment gain, as calculated by the household survey, of +3,756K mom is a more reliable indicator of the direction and strength of the employment recovery. Accordingly, in our models calculations, the U3 unemployment rate is tracking a 7.25% outcome by year-end 2020, with risk towards 6.95%. By year-end 2021, the U3 rate likely may track 4.92%, and by year-end 2022, the U3 rate likely is tracking 3.74%. Simply remarkable!
In this episode MUFG US Rates Strategist, John Herrmann, reviews the August employment report, including his forecasts for non-farm payrolls and the unemployment rate versus the actual results. He also explores the implications of the number on his outlook for the economy, the yield curve, and the Fed.

Japan’s monetary base, the Tokyo repo market, and cross-border flows ahead of quarter-end: The MUFG Global Markets Podcast

Even though Prime Minister Shinzo Abe’s resignation in August came as a surprise, the impact on JPY market was limited. Accordingly, remain cautious of JPY rates rising, USDJPY falling, and JPY basis taking on a widening bias. We expect to revisit these views as the next administration’s lineup and its policy stance unfold in mid-September. Ahead of that, the Japanese Ministry of Finance Balance of Payments data for August suggest the new administration’s first order of business may be fiscal spending.In this episode, Takahiro Sekido, Chief Japan Strategist of Global Markets Research, MUFG Bank Tokyo discusses Japan’s monetary base, JPY fund supply and demand, the Tokyo repo market, cross-border flows, and his views on USDJPY and JPY rate and JPY basis. 

ECB's time to follow the Fed: The Global Markets FX Week Ahead Podcast

September will be key for central banks globally responding to the looser monetary policy outlined by the Federal Reserve.
First up is the ECB, and Derek Halpenny, Head of Research for Global Markets EMEA, explains why he is predicting a forceful message from Christine Lagarde following Thursday’s meeting and the potential impact on the FX markets. Also in this podcast, Derek explains why trade negotiations between the UK and EU are about to become a big focus for investors.