The MUFG Global Markets Podcast

George Goncalves, MUFG Head of U.S. Macro Strategy, walks us through the latest price action where the normalization of rates out the curve has finally caught the attention of broader markets like stocks and credit. The so-called bear steepening of the curve (when long-term rates move higher in yields and in a quantum larger than short-term rate movements) is driving some serious financial conditions tightening. As George says, the bond market is tightening for the Fed. George still believes that the last Fed hike was in July and that all of these volatile market moves will result in them no longer hiking in 2023. That said, until long-term rates find stability (and better yet consolidate into a tradeable range) and until the U.S. dollar stops going up, these major swings may continue in his view. In the past, to see a quick reversal in U.S. Treasuries, there would need to be a much larger and deeper risk-off in stocks and credit. Overall George remains cautious and reminds us that it’s been “the same as it ever was”, higher rates do matter.

The US dollar has corrected weaker into the end of the week. Derek Halpenny, Head of Research Global Markets EMEA & International Securities, talks to Michael Owen, Head of Global Client Desk EMEA, about the factors behind the correction weaker for the dollar and why the government shutdown could reinforce the move over the short-term.
Derek also discusses the latest trade ideas published in the FX Weekly.
Disclaimer: www.mufgresearch.com (PDF)

Lee Hardman, Senior Currency Analyst, and Abdul-Ahad Lockhart, Currency Analyst in London, discuss the main takeaways from this week’s G10 central bank policy meetings.
 
Has the case for a stronger USD been reinforced?  

George Goncalves, MUFG Head of U.S. Macro Strategy, returns to review the price action since the summer break and what to expect from the FOMC at the upcoming meeting. George views the current environment as the most challenging for bond bulls, as the longer the Fed stays on hold with all this additional Treasury supply hitting the market, the pull toward higher rates will remain a powerful force. Granted, George does not believe that the window that will be afforded to the Fed staying “higher for longer” will be one that is long enough to fully normalize the yield curve towards the current level of Fed funds (because we expect the policy lags to hit the economy hard in Q4 into 1Q24). That said, the Fed can still use forward guidance signals, such as keeping their rate forecast “dot-plot” higher as a counter-balance to a bond market that is always looking for the next reason to rally. In terms of the FOMC meeting, we expect a slightly hawkish outcome, where the dots will try to pave the way for the Fed to signal they want rates to stay higher. Lastly we expect no change in actual Fed rate policy, a hawkish skip (i.e. no hike at this meeting) is our base-case.

Lee Hardman, Senior Currency Analyst, and Andrea Hayward, Vice President of the Japanese Client Sales Group for EMEA in London, discuss what has been behind a volatile week for the USD.
They also discuss how the latest central bank updates from the BoE, BoJ and Fed in the week ahead are likely to impact the FX market.  

In this month’s episode, MUFG Head of Prepayment Modeling and Strategy, Glenn Schultz, discusses August's prepayment data and answers the question of whether the Spring/Summer selling season prepayment data indicate a structural shift in the agency MBS market back to the “old normal”. He also addresses the question “Who is going to buy Agency MBS?” and how issuance will influence the agency MBS basis going forward.

Lee Hardman, Senior Currency Analyst, and Lin Li, Head of Global Markets Research Asia, discuss the outlook for China’s economy and the renminbi.
With USD/CNY just hitting the highest level since 2007 is this the start of another leg lower for the renminbi? What are the potential spill-overs for the global economy and FX market? 

Following today’s employment report from the US, Derek Halpenny, Head of Research for Global Markets EMEA & International Securities talks to Matthieu Gloux, Head of Global Client Sales for EMEA, about the implications for the dollar and whether the data changes the outlook for Fed policy.
Derek also highlights the changes to MUFG’s US dollar forecasts following the release today of the monthly Foreign Exchange Outlook publication and updates listeners on the MUFG Research trade ideas.

Lee Hardman, Senior Currency Analyst, and Jack Greenslade from the Global Customer Marketing Group discuss the main drivers of the USD’s strong rebound over the summer. Is the USD rally likely to extend further beyond Jackson Hole?

The increased focus on China and the potential fallout from a continued weakening of growth and missed payments linked to property market losses played a key role in driving markets this week.  
Derek Halpenny, Head of Research, Global Markets EMEA & International Securities talks to Simon Mayes, Head of UK, Ireland and Swiss Corporate Sales, about the increased influence of CNY in the FX markets and why these developments and other factors remain supportive for the US dollar. Derek looks ahead to next week and the Jackson Hole Symposium and the possible risks of intervention in USD/JPY.

George Goncalves, MUFG Head of U.S. Macro Strategy, reviews the recent Fitch downgrade of the U.S. credit to AA+ and compares it to the first downgrade by S&P roughly 12 years ago. He believes this time the backdrop is different given that the debt loads are even larger now and the Fed has rates much higher versus back then when rates were anchored by the near zero rate policy of that time period. Market reactions thus far are also different versus the first downgrade too. The other issue is that the Fitch downgrade occurred during a week when the Treasury was announcing the need to issue more debt and increase the auction sizes of Treasury securities. George has been highlighting that the sequence from the Fed to the BoJ tweaking YCC and then more UST debt, all of which have largely come to fruition as per George’s views, should result in rates in the middle of the yield curve (known as the belly and/or intermediate rates) would do most of the adjustment higher. So far that is what we have seen with 10s now well above the 4% level. Lastly, George looks forward and discusses why NFP, which is always important, but unless it breaks the string of weaker NFP reports of late, than the Fed is likely to skip in September.  

Following another favourable US inflation report this week, Derek Halpenny, Head of Research Global Markets EMEA & International Securities talks to Shan Husain, Vice President, Financial Institutional Sales EMEA, about the financial market reaction to the data and what it means for the US dollar and rates going forward. Derek also looks ahead to next week which will see the focus on inflation turn to the UK.

In this month’s episode, MUFG Head of Prepayment Modeling and Strategy, Glenn Schultz, discusses July's prepayment data and gives the lowdown on the Spring/Summer selling season's turnover. He also reviews relative value across the specified pool stories highlighting those he believes offer MBS investors superior relative carry.  Finally, Glenn reviews our basis forecast and makes the argument for our year-end target of 120 to 130 basis points for the 30-year agency current coupon.
 

Lee Hardman, Senior Currency Analyst, and Abdul-Ahad Lockhart, Currency Analyst in London, discuss the main market impacts from the recent surprise announcements from the BoJ and Fitch. The USD has staged a strong rebound since the middle of last month, will it continue in the week ahead?  

Lee Hardman, Senior Currency Analyst, and Seiko Kataoka-Fisher, Vice President from Japanese Customer Sales for EMEA in London, discuss the BoJ’s decision to make YCC more flexible and recent policy updates from the ECB and Fed.
Will the BoE deliver another hawkish policy update in the week ahead?

George Goncalves, MUFG Head of U.S. Macro Strategy, expects the Fed to deliver one more hike of 25bps at the upcoming July FOMC meeting. The FOMC statement should not see major tweaks at this time of the year, largely given that it’s a July meeting that sits between Jackson Hole and the September FOMC meeting updates (and also because the June FOMC meeting saw the Fed upgrade its forecasts on growth, inflation and rates).  
In order for the Fed to keep all options open and avoid hinting that this may be their last hike they need to keep forward guidance in place by keeping this phrase largely unchanged “In determining the extent to which additional policy firming may be appropriate.”  As George has mentioned before, until chair Powell strikes out the inflation concerns from the opening remarks in the presser, they are focused more on fighting inflation versus being overly concerned about the trajectory for growth. The presser is what ultimately determines how markets read chair Powell’s tone if this July hike was a dovish, neutral, or hawkish hike. We are leaning on the neutral to hawkish side.

Next week is a busy schedule for the financial markets with the FOMC, ECB and BoJ all meeting. Ahead of the BoJ meeting specifically, Derek Halpenny, Head of Research Global Markets EMEA & International Securities is joined by Sumino Kamei, Senior Analyst, Global Markets, to discuss possible outcomes of the BoJ meeting.
Sumino provides an update on market expectations from a Tokyo perspective following the BoJ comments this week that has seen YCC speculation subside and explains why MUFG Bank continues to think a change in policy could happen. Derek provides his thoughts on the FX impact and possible broader market implications.

Lee Hardman, Senior Currency Analyst, and Jack Greenslade from the Global Customer Marketing Group discuss the reasons behind the latest sell-off and whether it will continue. Inflation is also set to remain in focus for markets in the week ahead with the release of the latest CPI reports from New Zealand, Canada, the UK, the Eurozone and Japan. 

George Goncalves, MUFG Head of U.S. Macro Strategy, reflects on the price action and economic developments of the 1st half and provides us with thoughts on some of the risks that may lie ahead in the 2nd half. George believes that the markets caught a big break on the back of overly defensive posturing resulting in investors having to chase performance and close out short-positions and underweight level to benchmarks during the start of the year. Granted economic conditions in the U.S. were more favorable than initially feared, the overall global backdrop, especially on manufacturing side continues to weaken. Meanwhile we have central banks that have returned to hiking and the Fed has signaled that they are not done either after having skipped at the June FOMC. In our view, after a somewhat muted reaction to Fed tightening we believe the long and variable lags may actually hit harder now as we go through the 2nd half. George remains skeptical the regional bank crisis is fully resolved and that coupled with off-shore dollar liquidity draining could serve as a catalyst for risk-off.
 

Following the US jobs report from the US and ahead of the CPI data next week, Derek Halpenny, Head of Research Global Markets EMEA & International Securities discusses with Michael Owen, MUFG’s Head of Global Client desk for EMEA in London, the consequences for Fed policy, rates and the US dollar.
Derek also discusses the outperformance of the Japanese yen this week, highlighting developments that point to risks of a YCC change at the next BoJ policy meeting on 28th July.
Disclaimer: www.mufgresearch.com (PDF)

The JPY has weakened sharply during June falling below last year’s lows. Lee Hardman, Senior Currency Analyst, and Simon Mayes, Director of MUFG’s Global Customer Marketing Group for EMEA in London, discuss what has been driving recent JPY weakness & the risk of intervention.   

After two event-packed weeks including the FOMC, ECB and BoE meetings and Fed Chair Powell’s semi-annual testimony, Derek Halpenny, Head of Research, Global Markets EMEA and International Securities, discusses with Shan Husain, Vice President FI FX Sales, what the implications are for FX and rates going forward.
Derek also looks ahead to the ECB Annual Forum on Central Banking in Sintra, Portugal next week and the key incoming economic data that will help shape the direction of financial markets.
Disclaimer: www.mufgresearch.com (PDF)

Lee Hardman, Senior Currency Analyst, and Abdul-Ahad Lockhart, Quant Analyst in London, discuss the main impact of the latest central bank updates from the BoJ, ECB, and Fed on FX markets. The GBP has hit fresh highs this week against other major currencies.
What are the main risks to the bullish trend in the week ahead?
Disclaimer: www.mufgresearch.com (PDF)

In this month’s podcast, MUFG Head of Prepayment Modeling and Strategy, Glenn Schultz, reviews the implications of how turnover has exceeded market expectations and the implications for valuation across the coupon stack. Notably, we make the case a continued tightening of the current coupon basis and our year-end forecast of 120 basis points against the back drop of prepayment, FDIC bank liquidation, and origination volumes.