Investment View: No Pain, No Gain

‘Investment View’ provides our quarterly macro & market outlook and investment recommendations

  • A false sense of calm dominates global markets as the curtain falls on 1H23, with the US economy defying gloomy expectations and financial volatilities across Equity, Credit and FX falling to suspiciously low levels. Increasingly global markets look priced for Goldilocks: no recession this year, a strong rebound in earnings over the coming 18 months and a quick normalisation of inflation.
  • AI, falling commodity prices and the normalisation of the supply chain support such a benign scenario. But central banks will not win the battle against inflation without a larger retrenchment in labour markets and final demand. Cracks in the credit space are widening: our growth forecasts are below consensus.
  • Mind what you wish for: persistent pricing power in a new inflation regime would support further margin expansion and earnings, yet would inevitably lead to much higher terminal rates, and eventually a boom-and-bust scenario.

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