Markets

Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

Go ahead, make a prediction about 2016. It's easy if you try. Don’t worry if you’re wrong. You can always come up with a new one next week.

That’s what a growing number of Wall Street analysts seem to be doing as they revise their forecasts almost as soon as they have made them.

JPMorgan and Deutsche Bank analysts, for example, have already lowered their forecasts for 10-year yields made at the end of last year, Bloomberg News’s Susanne Walker Barton reported this week. Goldman Sachs is revising its euro forecast for the second time in six weeks, Bloomberg’s Lananh Nguyen and Rachel Evans wrote on Friday.

Inflation? Nah
Traders have steadily reduced their longer-term inflation expectations.
Source: Bloomberg
Note: The market expectation of the average level of inflation over five years, five years in the future.

You can’t really blame the strategists. Just think, every week, central bankers come out with new statements. They make mistakes. They’re running out of ammunition to support markets. Central bankers watch stocks and bonds, which are increasingly moody as investors, in turn, watch central bankers. The global economy is clearly slowing, but by how much? Who knows. Nobody trusts China. Whither oil.

Analysts at big banks are clearly struggling to make sense of it all.

Goldman currency strategist Robin Brooks revived his bearish call on the euro, which he previously changed because he “badly misread” the European Central Bank’s December meeting.

Meanwhile, JPMorgan and Deutsche Bank just dialed back their expectations for U.S. government bond yields as they started to think that perhaps Federal Reserve policy makers wouldn’t really want to raise interest rates all that much this year. How could they with markets in turmoil and investors such as George Soros and Ray Dalio calling for more easing, not less?

Deutsche Bank now predicts the 10-year yield will end the year at 1.75 percent, down from the 2.25 percent call it made in December, while JPMorgan says 10-year notes will yield 2.45 percent at year-end, down from a previous forecast of 2.75 percent, Walker Barton wrote.

Getting Jittery
A measure of implied volatility in Treasuries has been rising this year.
Source: Bank of America Merrill Lynch

There’s a deeper lesson to be learned from predictions that fail almost as soon as they’re uttered. There’s been a complete loss of confidence among investors and analysts alike in how to read market clues about what’s to come. After almost a decade of monetary easing, traditional market signals have become distorted almost beyond recognition. It’s hard to even know if they’ll work anymore, or how much central bankers can change the course of a waning credit cycle.

No wonder many big investment firms are hoarding cash and many investors are increasingly bearish on speculative-grade assets. Markets hate uncertainty. There's a ton of it right now. It's hard to see how stocks and riskier bonds could experience a sustained rally until a greater degree of confidence sets in. Until then, the dartboard rules.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net