Equities and commodities such as gold touched historical highs in May. The stocks rally broadened to Europe, the UK and China after the Fed paved the way for a dovish environment. In line US inflation also boosted sentiment. On the other hand, corporate earnings proved better than expected in the US and Europe. Looking ahead, central banks, the inflation/growth mix, earnings strength and geopolitical risks will shape the global economy and markets:

• Outlook marginally improving. We upgrade this year’s economic growth expectations for the Eurozone and the UK due to domestic demand and slowing inflation. The US should remain resilient in the first half, but slowing wage growth and consumer delinquencies may weigh on the economy later.
• Temporary decoupling of the Fed with Europe. The disinflationary process in Europe and the UK will allow central banks to reduce rates, possibly ahead of the Fed. US inflation readings are crucial for the Fed to decide on the timing of the first rate cut. We expect 75bps of cuts this year.
• US-China geopolitical rivalry calls for a strategic rethink in Europe. Europe is unlikely to alienate the US or China completely because of their importance for trade. The region also needs to balance its priorities around fiscal impetus and sustainability, low productivity (vs. the US) and investments related to the green transition that may fill the fiscal lag.
• Mixed picture for China. Temporary relief measures to boost the real estate sector do not address the main issue of weak demand. But exports have been encouraging, leading us to be vigilant on these two factors.

You can now read the full whitepaper at the link below