BNY Mellon Strategic Municipals, Inc. · NYSE:LEO
BNY Mellon Strategic Municipals — BNY Mellon Investment Management — Investor Presentation (March 2022)
48 slides from BNY Mellon Strategic Municipals's investor presentation, March 2022
Slide 1: Global Macro Outlook: War Footing
FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS. FOR GENERAL PUBLIC DISTRIBUTION IN THE US ONLY. Global Macro Outlook War Footing Global Economics and Investment Analysis Group BNY Mellon Investment Management March 2022
Slide 2: World economic activity had been slowing in Q4 2021/Q1 2022
World economic activity had been slowing in Q4 2021/Q1 2022 Latest data available as of March 28, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 2
Slide 3: While inflation had been stubbornly high
While inflation had been stubbornly high . Data as of March 30, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 3
Slide 4: Forcing central banks and markets to reassess future monetary policy
Forcing central banks and markets to reassess future monetary policy Latest data available for both charts as of March 30, 2022. FCI stands for Financial Conditions Index Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performanc
Slide 5: And causing markets to wobble
And causing markets to wobble Latest data available as of March 28, 2022. For right hand side 20-day observation moving average for CBOE Vix is utilized. Source: Bloomberg and Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 5
Slide 6: Then Russia invaded Ukraine
Then Russia invaded Ukraine Latest data available as of March 29, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 6
Slide 7: Then Russia invaded Ukraine
Then Russia invaded Ukraine The Bridge/CRB Spot Market Price Index is a measure of price movements of 22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. Latest data available as of March 30, 2022. Source: Macrobond. Cha
Slide 8: Worsening the growth/inflation trade-off
Worsening the growth/inflation trade-off Latest data available as of March 28, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 8
Slide 9: And complicating the monetary policy decision
And complicating the monetary policy decision Unconventional monetary policies, such as the Federal Reserve’s quantitative-easing program, have played a large role in shaping world economies since the 2007–10 financial crisis set off global recession. Economists, however, have struggled to quantify
Slide 10: Meanwhile, US demand remains robust
Meanwhile, US demand remains robust Durables, also known as durable goods or consumer durables, are goods that do not need to be purchased very often and typically last for at least three years. Nondurable goods are any consumer goods in an economy that are either consumed in one use or used up over
Slide 11: And inflationary pressure remains uncomfortably high
And inflationary pressure remains uncomfortably high The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas.PCE stands for Pe
Slide 12: The labour market is tight and mismatch persists
The labour market is tight and mismatch persists A Beveridge curve, or UV curve, is a graphical representation of the relationship between unemployment and the job vacancy rate, the number of unfilled jobs expressed as a proportion of the labor force. Latest data available as of March 29, 2022. Sour
Slide 13: Wage inflation is building
Wage inflation is building The Atlanta Fed's Wage Growth Tracker is a measure of the nominal wage growth of individuals. Latest data available as of March 28, 2022 for right hand side and March 30 for left side chart. Source: Macrobond. Charts are provided for illustrative purposes and are not a rel
Slide 14: And supply disruption remains a factor
And supply disruption remains a factor NY Fed global supply chain pressure index. Data as of March 28 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 14
Slide 15: Key question: where will Fed Funds peak?
Key question: where will Fed Funds peak? A forward rate is the settlement price of a transaction that will not take place until a predetermined date. In bond markets, the forward rate refers to the effective yield on a bond, commonly U.S. Treasury bills, and is calculated based on the relationship b
Slide 16: Europe looks weaker and will be hit harder
Europe looks weaker and will be hit harder GFC stands for Global Financial Crisis. Data as of March 29, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 16
Slide 17: Much depends on how quickly it can diversify away from Russian gas
Much depends on how quickly it can diversify away from Russian gas .Data as of March 29, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 17
Slide 18: Much depends on how quickly it can diversify away from Russian gas
Much depends on how quickly it can diversify away from Russian gas Underground gas storage in Rehden in Germanty and Bergermeer in Netherlands. Data as of March 29, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performanc
Slide 19: China's property-driven slowdown continues
China’s property-driven slowdown continues Latest data available as of March 29, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 19
Slide 20: Though Q1 2022 surprised to the upside
Though Q1 2022 surprised to the upside Latest data available as of March 29, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 20
Slide 21: Zero Covid policy a threat – to domestic growth and global supply chains
Zero Covid policy a threat – to domestic growth and global supply chains Latest data available as of March 30, 2022. SME stands for small and medium enterprises. For right hand side chart, A reading below 50 indicates majority of private businesses are pessimistic about current conditions Source: Ma
Slide 22: Don't forget – global 'excess' pandemic savings remain high
Don’t forget – global ‘excess’ pandemic savings remain high Distribution of US excess savings USD per household, thousands % of annual disposable income Data as of September 2021. Source: Fathom Consulting Charts are provided for illustrative purposes and are not a reliable indicator of current or f
Slide 23: Our scenarios
Our scenarios 35% 10% 35% 20% Best Case Inflation Surges Widespread Recession Liquidity Crunch • Short conflict •Short conflict •Prolonged conflict • Financial sanctions have unintended consequences via • Energy prices fall back H2 •But energy prices stay high •Energy prices continue to rise western
Slide 24: Growth forecasts
Growth forecasts Euro area GDP China GDP US GDP Four-quarter percentage changes Four-quarter percentage changes Four-quarter percentage changes 20 25 15 15 20 10 10 15 5 5 10 0 0 5 -5 -5 0 -10 -10 -5 -15 -15 -20 -10 2020 2021 2022 2023 2024 2020 2021 2022 2023 2024 2020 2021 2022 2023 2024 Mean Best
Slide 25: Inflation Forecasts
Inflation Forecasts US CPI Euro area CPI Four-quarter percentage changes Four-quarter percentage changes 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Mean Best case Widespread recession Mean Best case Widespread recession Source: Fatho
Slide 26: Monetary Policy Forecasts
Monetary Policy Forecasts US federal funds rate Per cent 6 5 4 3 2 1 0 2019 2020 2021 2022 2023 2024 Mean Best case Widespread recession Source: Fathom Consulting Forecasts begin in Q1 2022 and were calculated as of March 14, 2022. The solid lines show the most likely (highest probability) scenario
Slide 27: Market pricing and performance
Market pricing and performance
Slide 28: Strengthening domestic recoveries in EM have limited Chinese contagion
Strengthening domestic recoveries in EM have limited Chinese contagion MSCI China vs. MSCI EM ex-China Latest data available as of March 30, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 28
Slide 29: Breadth weakened but showing signs of stabilizing
Breadth weakened but showing signs of stabilizing % of stocks above 200-day moving average Latest data available as of March 30, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 29
Slide 30: Value and high-dividend yield factors led in Q1 2022
Value and high-dividend yield factors led in Q1 2022 Latest data available as of March 28, 2022 for both charts. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 30
Slide 31: Earnings remain supportive but estimates are softening
Earnings remain supportive but estimates are softening Latest data available as of March 28, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 31
Slide 32: Valuations coming under pressure but remain supported by low real yields
Valuations coming under pressure but remain supported by low real yields PE: price to earnings ratio. Data as of March 28, 2022. Source: JP Morgan and Macrobond. Charts are provided for illustrative purposes and are not indicative of the past or future performance of any BNY Mellon product. 32
Slide 33: And are vulnerable to tighter policy led by the Fed
And are vulnerable to tighter policy led by the Fed PE: price to earnings ratio. Data as of March 28, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not indicative of the past or future performance of any BNY Mellon product. 33
Slide 34: Interest rate implied vol rose with higher macro and policy uncertainty
Interest rate implied vol rose with higher macro and policy uncertainty A swaption is an option granting its owner the right but not the obligation to enter into an underlying swap. Latest data available as of March 28, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are n
Slide 35: Long-term yields trended higher
Long-term yields trended higher Latest data available as of March 28 2022. Source: Bloomberg. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 35
Slide 36: But shorter-term rates increased so curves flattened signaling tighter policy
But shorter-term rates increased so curves flattened signaling tighter policy Latest data available as of March 28, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 36
Slide 37: Inflation expectations are key for what may happen to real rates
Inflation expectations are key for what may happen to real rates Inflation expectations have increased but remain anchored. Households appear willing to tolerate inflation between -1% and 3%. But when current inflation moves above 3%, expected inflation turns up Latest data available as of March 30,
Slide 38: More risk is now priced into credit markets and Europe periphery bonds
More risk is now priced into credit markets and Europe periphery bonds US IG and HY corporate spreads* (%) Spreads to German Bunds** (%) HY: high yield. IG: investment grade. *OAS: option adjusted spread. **Bunds are another way to describe German 10-year government bond yields. Data as of March 30,
Slide 39: Spreads across the credit spectrum widened in Q1 2022
Spreads across the credit spectrum widened in Q1 2022 USD corporate credit spreads since 2000 Latest data available as of March 30, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of current or future performance 39
Slide 40: FX and rate volatility have increased alongside a higher USD
FX and rate volatility have increased alongside a higher USD US dollar index FX and interest rate volatility DXY Curncy stands for US Majors dollar index. Latest data available as of March 30, 2022. Source: Macrobond. Charts are provided for illustrative purposes and are not a reliable indicator of
Slide 41: Equity price forecasts
Equity price forecasts US S&P 500 Euro Stoxx 50 Index Index 7000 7000 6500 6500 6000 6000 5500 5500 5000 5000 4500 4500 4000 4000 3500 3500 3000 3000 2500 2500 2000 2000 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Mean Best case Widespread recession Mean Best case Widespread recessio
Slide 42: Fixed income and credit forecasts
Fixed income and credit forecasts US ten-year government bond yields US investment-grade spread US high-yield spread Per cent Percentage points Basis points 7 4 1200 6 3.5 1000 5 3 2.5 800 4 2 3 600 1.5 2 1 400 1 0.5 200 0 0 -1 0 -0.5 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 2019
Slide 43: Oil price and dollar forecasts
Oil price and dollar forecasts Oil prices USD ERI against major currencies USD per barrel Index, January 2006 = 100 250 150 140 200 130 150 120 110 100 100 50 90 80 0 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Mean Best case Widespread recession Mean Best case Widespread recession S
Slide 44: Investment Conclusions
Investment Conclusions Equities 80:20 portfolio returns • The immediate outlook for equities is poor – markets are likely to remain volatile, risk premia Index remain high, and our fan chart forecasts suggest risks are skewed to the downside. 160 • Short-duration parts of the market are likely to ou
Slide 45: Definitions
Definitions Purchasing Manger Indices (PMI) An economic indicator derived from monthly surveys of private sector companies. A level above 50 indicates expansion compared to the prior month and below 50 contraction. MSCI All-Country World The MSCI All-Country World Index is an index that tracks the p
Slide 46: Disclosures
Disclosures FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS. FOR GENERAL PUBLIC DISTRIBUTION IN THE U.S. ONLY. This material should not be considered as investment advice or a recommendation of any investment manager or account arrangement. Any statements and opinions expr
Slide 47: BNY Mellon Global Economics and Investment Analysis Team
BNY Mellon Global Economics and Investment Analysis Team 47
Slide 48: BNYM-VPCBPRS-0821
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