Economy

The debt ceiling game’s endpoint will avoid default only if it implies economic pain. For the Republicans, the best strategy is not to lift the debt ceiling unless the Democrats cut spending a lot, or unless the economy starts to tank. Plus: there are signs that the mania in ‘AI’ stocks has gone too far too fast.

China’s recovery is losing steam. Its industrial segments will disappoint, while the pace of consumer spending will be moderate. Overall, the Chinese economic recovery will underwhelm in the months ahead. Odds are that interest rate expectations in China will drop even lower, which will weigh on the RMB.

Investors should expect high volatility and a selloff in US stocks over the short run due to the higher-than-usual risk of technical default. Investors should seek shelter in defensive sectors and large cap stocks. Long-dated Treasuries will see yields fall due to the overall macro and geopolitical context even though short-dated Treasuries will continue to suffer from policy uncertainty.

The consumption outlook remains solid thanks to households’ sizable excess savings, incomes that will be boosted by a tight labor market and ample capacity to add debt to augment their buying power.

The outlook is downbeat for the share prices of both onshore and offshore Chinese property developers in absolute terms, and relative to China’s overall equity benchmark. A marginal increase in housing construction activities in the rest of this year implies that there will be not a meaningful recovery in the demand for commodities, such as iron ore, steel, cement and glass.

Consumer discretionary shares have led European markets higher this year. While long-term drivers remain positive, can the same be said for the remainder of 2023?

In this *Special Report*, we analyze the dollar’s reserve status within the context of geopolitical crosscurrents. In our view, there is more than meets the eye when betting on the end of the dollar’s reserve status.