Markets in `Dangerous New Phase' on Higher Rates, Macquarie Says

(Bloomberg) -- The U.S. economy should continue to do well in coming months, though better growth and higher inflation may lead to challenges for the markets, Macquarie analysts wrote in a note Monday.

“The combination of strong growth, a large U.S. fiscal stimulus and surging animal spirits has finally forced markets to begin to shake off the ‘secular stagnation’ shackles that dominated pricing in recent years,” the analysts said. However, the report -- under headings like “A Dangerous New Phase” and “Too Much of a Good Thing?” -- also cautioned that “higher yields are likely to mean that the best days of the bull market are behind us.”

Macquarie sees 10-year Treasury yields moving above 3 percent later in 2018, and approaching 3.75 percent by the end of 2019, as the European Central Bank begins to normalize rates and U.S. unemployment nears 3 percent.

The firm also expects the recent increase in the U.S. dollar to be short-lived, seeing a slide over the rest of the year, and predicts industrial commodity prices will fall modestly in coming months as weaker Chinese growth and higher supply weigh.

--With assistance from Joe Weisenthal

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To contact the editors responsible for this story: Tracy Alloway at talloway@bloomberg.net, Andrew Dunn, Randall Jensen

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