Global Research Unlocked

Bond market expects the Fed to get the job done

Despite all the talk of sticky, structurally higher inflation, Meghan Swiber and the US Rates Strategy team find that after disaggregating the yield curve the message from rates markets may be a bit different than the popular discourse. Yes, the yield curve inversion suggests the market is pricing in Fed rate cuts. But looking at implied real rates suggests these cuts are expected because inflation should come down to the Fed's target, not because of a big slowdown in the economy. As inflation falls, real rates become more positive and the Fed reacts by cutting. We'll also discuss positioning in Treasuries and long term inflation expectations.

 

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

Demand for new homes and single-family rentals should remain strong even in a mild recession

Rental markets saw booming demand as people migrated and the economy recovered from COVID lows. But now, certain markets are facing high apartment supply, recent rent increases have made apartments less affordable and the consumer is less flush. Josh Dennerlein discusses apartment risks in the Sunbelt, why the single family rental market is generally more attractive than multi-family and why New York City rents are so strong. Housing analyst Rafe Jadrosich doesn't expect the millennial housing tailwind to become a headwind until the end of the decade. For now, demand is strong, the outlook for housing starts compelling and consumers and builders are both benefitting from what have been declining raw materials costs.

 

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

Tokenization of traditional assets accelerates

Token prices have gone up, down and up again, but the development of distributed ledgers and blockchains has accelerated throughout the volatility. The technology is maturing as public permissionless blockchains become faster and cheaper; and as private permissioned distributed ledgers emerge, that enables financial institution and corporate use cases required for regulatory compliance, privacy and scalabilty. Distributed ledgers and blockchains have powered trillions of dollars in tokenized asset transfers, but the disruption that we expect across every industry has only just begun. An evolution of infrastructure is occurring that is likely to transform financial and non-financial infrastructure and public and private financial markets over the next 5 to 15 years.

 

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

The bots are here to help

For software companies, generative AI can add efficiencies to product development but the revenue side is where things can get even more interesting. For example, digital content design software largely serves professional designers, and thanks to proliferation of Internet advertising, social media and web presence, that market has grown nicely. But AI can help open these design tools to a much larger group, allowing consumers to, say, come up with custom designs for birthday party invites and club logos. Brad Sills discusses areas within software likely to benefit from AI, those that are threatened and why platform software vendors may be advantaged over point solutions as AI proliferates.

 

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

Treasury supply to hit $1 trillion over the coming months

The debt ceiling drama has finally come to a close as Washington signed legislation to raise the debt ceiling and avert default. But the next chapter abruptly follows and involves $1T of Treasury Bill issuance over the next 3 months, 5x the average annual supply. Mark Cabana discusses the impact that may have on shorter term Treasuries, the outlook for long dated bonds and whether the agreed upon spending caps will dissuade any of the Treasury bears.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

Mine-d the compelling long term story for metals

Demand for metals is expected to ramp further as the world transitions to greener and more sustainable energy. But mining and processing more of these metals will require substantial capex and we'll likely need higher metals prices to spur that investment. Metals strategist Michael Widmer believes we need to invest around $160 billion per year, well above the $90 billion we currently spend. Investment in the electrical grid will have to increase as well, but these investments are currently harder for many regulators to stomach as consumers are already pressured by rising costs for everything from groceries to car payments. We discuss bottlenecks on the way to net zero and how the energy transition may also usher in changes like fixed price power bills.

 

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

Consumer lending remains positive for now but does a weakening consumer threaten that strength?

The collapse of several regional banks earlier this year has raised concerns around credit availability, especially as loan standards were already tightening into the spring. While Fed data shows that bank balance sheets are still expanding, loans tied to the commercial & industrial sector have declined 6% annualized over the last 13 weeks and it's consumer lending that has held up better. We discuss whether mounting weakness in consumer spend threatens lending and the role that regional banks play in the provision of credit.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

Negative sentiment pervades but depth of possible recession key to market path

Our proprietary survey shows investors are as pessimistic as they have been all year, leading to the biggest shift to bonds from equities since the Global Financial Crisis. But the news is not all bad. Savita Subramanian notes companies have effectively cut costs driving stability or improvement in margins and one reason March quarter results beat expectations. Though not constructive on markets at the index level, she sees opportunities in certain sectors.  But recession still looms and according to Elyas Galou,  every past Fed hiking cycle has ended with a credit event.  He suggests the next major credit event could lead us to the next recession, a risk for markets but a buying opportunity once it happens. You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

Biodiversity loss presents risks to the planet, company reputations and supply chains

Biodiversity provides us with essential ecosystem services such as pollination, water purification and climate regulation. Mentions of biodiversity in the news have soared 200% over the past two years, suggesting growing interest and awareness. Dimple Gosai, Head of US ESG Research thinks biodiversity related investments may grow 20x from today. In her work she concludes that within higher emitting sectors such as Energy, Industrials and Utilities, companies that address biodiversity losses tend to trade at a relative P/E premium. And companies that harm biodiversity may face financial and reputational risks. We're also joined by expert speakers Sofía Condés and Ingrid Kukuljan to discuss the role of food and agriculture in preserving biodiversity and why investors should consider biodiversity in their strategies. You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.

Blockchain innovation and app development continues

Blockchains are implementing innovative but differentiated approaches to improving the tradeoff between scalability, decentralization and security. We expect blockchains that expand functionality and incentivize development to become attractive for developers in the near term. Over the longer term, we expect blockchains that prioritize usability and effectively market themselves to gain market share by attracting a robust and diverse ecosystem of applications that drives adoption, network effects and cash flows. Despite last year’s digital asset correction, development continues for Layer 1 distributed ledgers and blockchains, Layer 2 scaling solutions and oracle networks and Layer 3 applications with real world uses. You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

 

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2023 Bank of America Corporation. All rights reserved.