Fixed Income

Even after the Fed cuts rates, policy will remain restrictive for some time. Moreover, in history, stocks have tended to fall around the first rate cut. We remain cautious on the outlook for the economy and risk assets.

Our annual end-of-summer chartbook report traces the labor market deterioration that led us to downgrade equities at the beginning of August. It also highlights the soft-landing expectations that the credit and equity markets are discounting. We like the risk-reward profile of our newly defensive stance.

Our negative stance on European growth and assets is not devoid of risks. To gauge whether these risks warrant upgrading our growth outlook, we monitor Sweden closely. So, what is the current message from this Nordic economy?

China has become less reliant on exports to advanced economies, and its products have successfully penetrated developing economies. Exports to the US make up 3% of Chinese GDP, while exports to all developing economies account for 10% of its GDP. China’s trade pivot from advanced to developing economies has economic, political, and geopolitical ramifications.

In this Special Report, we assess the impact of monetary policy tightening on major economies. Interest rate sensitive GDP already slowed significantly in response to the aggressive rate hiking cycle. Despite the beginning of policy easing, our forward-looking indicators suggest monetary policy will continue to weigh on the economy.

Investors should buy protection against further volatility. The shakeup in early August was a taste of things to come. The US election is a pivotal moment in modern history that will drive up uncertainty, while other countries take advantage of US division and distraction.