Japan

A post-mortem of our trades for the year, and also comments on future yen and sterling moves from the recent BoJ meeting, and the UK inflation report.

Global Investment Strategy predicted the surge of inflation in 2021/22 and the immaculate disinflation of 2023. Now their unique framework is predicting a recession in the second half of 2024.

Inflation won’t fall fast enough for the Fed to cut rates preemptively before recession arrives. The risk/rewards balance is unfavorable for risk assets. Stay overweight bonds versus equities.

In this Insight, we review the performance and rationale for our current set of tactical fixed income trade recommendations. Our highest conviction positions also happen to be our most successful trades: positioning for a narrowing of the German bund-JGB spread and wider Japanese inflation breakevens.

Labor markets are softening in most developed economies, as is usually the case in the lead-up to recessions. Our base case is that the global recession will begin in the second half of 2024, but we will be monitoring our MacroQuant model on a daily basis for confirmation.