Currencies

European assets have enjoyed a stunning outperformance since October 2022. Can these strong returns last in 2023?

In <b><i>Part I</b></i> of a long-term series on currency valuations, we show that a simple PPP model has a good track record of predicting long-term currency returns (over 3-to-5 years).

In EM ex-China, growth will continue decelerating. Some economies will experience an outright recession, while most will have a growth recession. Nearly every single economy will experience a cyclical drop in inflation (with the exception of Turkey).

We remain bullish the yen, despite the BoJ maintaining yield curve control. In this report, we outline a few reasons for this stance.

We remain bullish the yen, despite the BoJ maintaining yield curve control. In this report, we outline a few reasons for this stance.

In this week’s report, we look at whether global growth conditions remain conducive for a continued decline in the dollar. Our findings are mixed, while there are some economic green shoots, the overall growth picture remains weak. This argues for some consolidation of dollar losses in the near term.

While the housing downturn will be fairly mild in the US, it will be more severe abroad. Continue to favor bonds of countries whose housing fundamentals will limit rate hikes.

The crucial question for 2023 is: will the US and UK Beveridge Curves shift back inwards to their pre-pandemic versions, ushering in a soft landing? Or, will we slide down the new post-pandemic Beveridge Curves into recession? Plus: we reveal the most important chart for Europe and the most important chart for China in early 2023.

Relative to beaten-down expectations, global growth will surprise on the upside in 2023. Investors should overweight equities for now but look to turn more defensive in the second half of the year.