Market moves over the summer have served as a reminder that, at a time of high valuations, any mismatch on corporate earnings or monetary policy expectations and any scare on growth could be triggers for sudden falls. While most major markets have recovered from the volatility seen in early August owing to the Fed put, we cannot ignore the fact that some segments are still priced for perfection. This points to corporate earnings and policy actions coming under the spotlight even more, particularly as inflation cools, economic activity weakens and the noise around US elections increases.

• US soft landing, no-recession scenario in the US is confirmed. Slowing but not collapsing labour markets and weak fixed investments all point to a mild deceleration. For the UK, we marginally upgraded growth forecasts for this year but there are still question marks on domestic demand.
• Disinflation trend confirmed in US and Europe. We revised down our Q4 2024 headline consumer price inflation projections for the US due to weakness in unit labour costs and the employment cost index. An improvement in labour productivity should also foster disinflation. In Europe, the speed of disinflation is linked to services inflation, which could be sticky.
• The phase of central bank divergences may be coming to an end, with Japan an outlier. We expect three rate cuts from the Fed, and three each from the ECB and the Bank of England for the remainder of year.
• China is facing a difficult road to recovery. Support for the housing markets has been short lived even as labour markets deteriorated. Corporate profitability is being affected by worsening consumer confidence.

You can now read the full whitepaper at the link below