CoreMacro

After resisting the consensus narrative in 2022 that a US recession was imminent, and then predicting an immaculate disinflation for 2023, the Global Investment Strategy team has joined the dark side and is now expecting a recession to start in the US within the next six months. Accordingly, we recommend that investors underweight stocks and overweight government bonds.

The Chinese government had no choice but to act this week. Housing starts are down 65% from their peak.

The adrenaline from the recent policy stimulus might be sufficient to produce a window of outperformance for Chinese equities and China-plays in financial markets. However, this adrenaline will not extend to China's real economy. Net-net, we are upgrading the allocation to EM in a global equity portfolio from underweight to neutral.

China’s Politburo announcement is likely to lead to a repricing of China’s growth in the near-term. Read how investors can hedge against this potent threat to our defensive investment stance.

In my view, the revisions resolve a big puzzle that has developed over the past two years, which is how employment growth could have been so strong while personal income growth was so weak. Well, as it turns out, income growth was quite strong too.

Just like the market for Oasis 2025 reunion tour tickets, the US labour market is ‘supply-constrained’. This means the US will not go into a GDP recession in the next few months and has a good chance of cheating one for longer. Without a GDP recession, there is unlikely to be an economy-wide profits recession. This leads to three recommendation changes on a cyclical (12-month) horizon which we highlight. Plus: the tactical rally in Chinese stocks can continue.

We believe the PBoC’s recent policy stimulus might bolster investor confidence, potentially stabilize onshore Chinese equity prices, and provide modest support to offshore stocks. However, they are unlikely to significantly boost economic growth in the mainland.

We believe the PBoC’s recent policy stimulus might bolster investor confidence, potentially stabilize onshore Chinese equity prices, and provide modest support to offshore stocks. However, they are unlikely to significantly boost economic growth in the mainland.

Two days ago, I flagged how the number of people in the US who are working part time but would rather be working full time is rising, which usually only happens in the early stages of recessions.