Must Read Research
February 1, 2026
Candace Browning, Head of BofA Global Research
As policy, rates, and the dollar increasingly shape relative outcomes, new fault lines are emerging beneath the surface of global markets. This week, we flag an extreme reading for gold per our Bubble Risk Indicator, reassess valuation gaps across U.S. and EU supermajors, unpack the structural roots of Mexico's growth stall, and highlight how tight lending is constraining U.S. manufacturing momentum.
The sharp rally in gold over the last three months has come with increasing instability, leading our Bubble Risk Indicator (BRI) to rise to near 1 earlier last week, an indication of risks in both tails.
There are other assets showing bubble-like dynamics too, according to the measure, including silver, the Korean Kospi index and rare earth stocks. A common driver behind all of these price moves is dollar weakness. Price strength combined with rising volatility is behind the high BRI readings but elevated volatility also means optionality comes at a price. Equity Derivatives Research prefers spread-based options structures that can mitigate high premiums and suggests replacing long gold positions with call spreads, protecting against a pullback while providing upside exposure. Further on dollar weakness, Global Economist Claudio Irigoyen highlights that while some further depreciation may be ahead, there are limits, especially as monetary policy abroad would likely react to substantial further weakness.
In 2025, European oil supermajors narrowed some of the underperformance plaguing the group since 2020, as their lower oil-price beta provided downside protection, yet U.S. integrateds still trade at a significant ~3-4x EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortization) premium.
Senior Integrateds Analyst Jean Ann Salisbury and Head of European Energy Equity Research Christopher Kuplent argue this gap remains stretched given Europe's higher exposure to long-life assets (EU individual projects last longer than in the U.S.), though they do not expect the gap to ever close. U.S. integrateds retain structural advantages: a higher upstream oil mix, stronger near-term production growth, higher cash flow per barrel, longer reserve life and superior refining margins tied to U.S. footprints, and lower financial gearing. European portfolios are more weighted towards long-cycle production. Within this group, our analysts see the most attractive risk/reward in names with a clear free-cash-flow inflection point.
Despite macro stability, proximity to the U.S., and nearshoring momentum, Mexico's GDP (gross domestic product) per capita has barely improved over the past decade.
Head of Latin America and Canada Economics Research Carlos Capistran argues the core constraint is structural: weak productivity. Total factor productivity (TFP) has fallen 8% over the last decade and has declined an average of 0.6% annually since 1960 — among the worst in Latin America. Since 1990, TFP is down 22%, far behind peers such as Poland, Korea, and the U.S. Carlos believes that a key challenge is extreme productivity dispersion: highly efficient export-oriented firms coexist with a vast base of microenterprises operating with low technology, informality, poor capital access, and limited financing. This misallocation traps labor and capital in low-value activities and suppresses growth. Mexico now faces an inflection point. Nearshoring presents a major opportunity, but capturing it requires productivity-driven reforms focused on human capital, competition, infrastructure, technology adoption, and stronger institutions.
Commercial & Industrial (C&I) lending has contracted from 8.9% of GDP (gross domestic product) in 3Q19 to 6.8% in 2025 and below the 30-year average.
As a share of bank assets, C&I lending declined from 10.4% to 8.4%. This credit tightening, ongoing since July 2022, is the longest non-recessionary credit contraction since 1990 and has historically preceded slowdowns in industrial production. Senior Multi-Industrial Analyst Andrew Obin notes that manufacturers delevered from 2.6x to 2.0x, indicating credit constraints rather than weak demand. Private credit partly filled the gap at higher costs, with 89% of incremental manufacturing debt coming from non-banks since 2019. Still, surveys of CFOs indicate that credit has been difficult to get or has come at unfavorable terms. Recent regulatory relief, including relaxing leveraged lending guidance and potential easing of bank leverage ratios, could unlock over $1 trillion in lending. With ample bank capital, C&I lending could reaccelerate in 2026, supporting industrial production.
Claudio Irigoyen, Head of Global Economics, BofA Global Research
The curious case of the U.S. dollar
The weakness of the U.S. dollar is in vogue these days, but we think part of the narrative is overblown. U.S. exceptionalism has allowed sustained current account and fiscal deficits to be easily financed at low interest rates while leading to a historically strong dollar as capital flowed to the U.S. Despite uncertainty and policy changes, the relative outperformance of the U.S. shows no signs of cracking.
True, the dollar may have lost some of its luster, including its hedging properties, and some further depreciation may follow. But there are limits to how much depreciation could take place, not least because monetary policy abroad would react to it. And if the story is about fiscal profligacy and dollar (and other currencies') debasement, then we should be asking ourselves how much more room real assets may have to run.
