Mid-Quarter Update & Slides: Escalation

In this mid-quarter update, entitled “Escalation,” we discuss the backdrop of escalating trade wars and our belief that the environment is more favorable for US Treasury bonds relative to stocks.

  • The trade war is escalating at a time of weakening global growth, thereby weighing further on growth.
  • The CNY/USD devaluation that began last year is negatively impacting growth.
  • Crude oil inventories have been building, which supports the USD.
  • All facets of financial conditions appear to be tightening concurrently.
  • There are some important positive changes that appear to be underway in the US, helping explain the undershoot to inflation.
  • The Fed appears to be tip-toeing up to a rate cut which the US Treasury market is anticipating.
  • Even though US Treasury yields have fallen significantly, we think there is scope for further declines.

To read our full analysis, please click to download Escalation.

Questions? Email investmentteam@klcapital.com.

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