Financial Markets
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).
This insight presents an outlook on USD-Denominated Emerging Market Bonds.
China's reopening is much more positive for the Chinese economy than it is for the rest of the world, as it will boost its domestic service sector activity and consumer spending much more than the industrial economy. A slowdown in Chinese industrial activity will put downward pressure on its demand for raw materials and energy, helping the world avoid another spike in inflation. Upgrade Macau casinos to overweight as the key beneficiaries of reopening. Off-shore TMT and bank shares face structural headwinds.
In this Strategy Insight, we assess the best and worst opportunities for inflation-linked bonds within the major developed markets. We see a case for underweighting inflation protection in the euro area, while overweighting Japanese inflation-linked bonds with the Bank of Japan moving away from yield curve control at a time of relatively high Japanese inflation.
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.
The Fed will respond to December’s CPI report by downshifting to a 25 bps hike pace next month. We anticipate two more 25 bps hikes before the Fed goes on hold.
Why will Chinese consumer spending recover but not its industrial sectors? Will China's reopening boost the global business cycle and inflation? How fast will US core inflation fall and what are the implications for corporate profits? Are global equities pricing in enough bad news/profit contraction?
Today we are publishing a charts-only report focused on the key macroeconomic data as well as each GICS1 S&P 500 sector. Many of the charts are self-explanatory; to some we have added a short commentary. The charts cover macro, valuations, fundamentals, technicals, and the uses of cash. Our goal is to equip you with all the data you need to make investment decisions in these sectors.