值得一提的是，目前美国ISM制造业指数已经连续四个月陷入萎缩，而美银预计ISM回将重回扩张，到10月达到52。Bank of America Merrill Lynch said that if the US ISM Manufacturing Index is greater than 49, it will push the 30-year bond yield above 4.3%; globalisation, low debt, demographic structure, and technology as low inflationary factors reverse, inflation will return to the 5% level, and the bull market of csi commodity equity index is just beginning.
In early August, when the market experienced a major decline, Bank of America warned to pay attention to the key support levels. Now, with the upcoming release of the ISM Manufacturing Index, Bank of America believes that the decline in US bonds presents a buying opportunity, and the bull market for commodities is just beginning.
Michael Hartnett, the renowned strategist at Bank of America, commented in his latest Flow Show report that he sees an opportunity to re-enter long-term bond trading, especially if the ISM Manufacturing Index exceeds 49, which could push the 30-year bond yield above 4.3%.
It is worth mentioning that the current US ISM Manufacturing Index has been in contraction for four consecutive months, and Bank of America expects the ISM to return to expansion, reaching 52 by October.
Furthermore, Jared Woodard, a co-author of the report and a strategist at Bank of America, sees opportunities larger than the bond market. Woodard believes that in the 20th century, the average inflation rate was 5%, but with the rare combination of globalization, low debt, demographics, and technological disruption, inflation dropped to 2%. Now, with these factors reversing, the bull market for commodities is just beginning.
ISM Manufacturing Index becomes critical.
Bank of America stated that the US August ISM Manufacturing Index will be released next week, with the market expecting it to rise from last month's 46.8 to 47.5, but it will still remain below the breakeven level.
The ratio of orders to inventory is the best indicator for predicting the future trend of the ISM Manufacturing PMI index. It is expected that by October 2024, the ISM index will return to expansion and reach 52.
Bank of America further stated that if the ISM rises next week, the biggest upside trades will be in the stocks of China, commodities, and South Korea/emerging markets. If the ISM falls again, the biggest downside trades will be in home builders, semiconductors, and finance.
The reversal of the upward trend in US bonds is a buying opportunity.
In the past 4 months, the 30-year US Treasury yield has dropped from 4.75% to 4.0%. Woodard detailed why he expects a "bond frenzy" to quickly reverse.
Seasonal: September is usually the second largest month for corporate bond supply, averaging $135 billion over the past 4 years, while the FMS cash level is lower at 4.3% and the $180 billion US bond supply increases sharply;
Geopolitical: Conflicts and protectionism have pushed up energy prices, with natural gas in Europe rising 70% since February.
Position: The 30-year US Treasury bond has transitioned from being oversold in the first quarter to being overbought today. FMS investors have turned net overweight on bonds for the first time since March 2024.
Extreme anticipation of the Fed: The market expects a 200 basis point rate cut in the next 12 months. Despite the "V-shaped" recovery of risk assets, the Fed still holds an optimistic hope, and the Fed's rate cut is now fully reflected in prices.
However, overall, it still maintains a bullish stance on US bonds, especially considering long-term US bonds as the best hedging tool against the rising risk of a "hard landing," so Bank of America believes that this trend reversal is a buying opportunity. As Woodard pointed out:
In terms of the US job market, in the past 6 instances, the private sector's share of total wage growth dropped below 40%, followed by a recession. This is because the "government and its friends" (education and medical) dominate the labor market and are contrary to the bullish view on productivity, and long-term bonds once again become the best "hard landing" hedge tool.
The bull market in commodities is just beginning.
In addition to long-term bonds, Woodard believes that a greater opportunity may be emerging, and the bull market in commodities is just beginning:
As described by Woodard, the shift from a "2% to 5% world," the average inflation rate in the 20th century was 5%, only with the rare combination of globalization, low debt, demographic structure, and technological disruption, did it bring 20 years of 2% CPI. But the reversal of these forces currently implies a structural shift in inflation back to 5%.
Woodard further pointed out:
Although most commodities currently seem to be in a long bear market, this situation is about to change, as the long-term bull market in commodities in the 2020s is just beginning, with an annualized return of 11%. Debt, deficits, demographics, deglobalization, artificial intelligence, and net zero policies will all contribute to inflation.
This means that for a 60/40 balanced investment portfolio, in the 2020s, the return on commodities is higher than that of bonds, and the total return over the past four years does confirm this: -39% for 30-year US treasury bond yield and +116% for commodity yield; even in the case of declining inflation, the annualized return of the commodity index can reach 10-14%, while the dovish Fed's return is only +6%.
Editor/Somer
