Fixed Income
In Section I, we explain why we do not see the deceleration in US inflation, the likely near-term pickup in European growth, and the end of China’s dynamic zero-COVID policy as signs of a sustainable rebound in global economic activity over the coming 6-12 months. The key question is not whether inflation will fall back to central bank targets, but rather how quickly this will occur. For now, our indicators point to slower but still elevated inflation this year. In Section II, we explore what it will take for the Fed to cut interest rates, and note that nonrecessionary rate cuts are possible but not especially likely.
Heading into a black hole, you pass a point of no return known as the ‘event horizon’ after which your impending oblivion is sealed. US recessions also have an event horizon, which we are fast approaching. We reveal a leading indicator of this event horizon, and what it means for investment strategy.
Fed Governor Lael Brainard delivered an important speech last week in which she laid out the intellectual justification for the Fed to soon pause its rate hike cycle. This week’s report reviews her arguments and explains how they inform our monetary policy and investment views.
Our latest edition of the Big Bank Beige Book suggests that households, businesses and banks are in unusually good shape ahead of a recession.
Hopes of a soft landing for the US economy will intensify over the coming months, allowing equities to rally. However, even if an equilibrium of high employment and low inflation is reached, it will be difficult to keep the economy there. Investors should remain tactically bullish on stocks but look to turn defensive in the second half of 2023.
In EM ex-China, growth will continue decelerating. Some economies will experience an outright recession, while most will have a growth recession. Nearly every single economy will experience a cyclical drop in inflation (with the exception of Turkey).
We remain bullish the yen, despite the BoJ maintaining yield curve control. In this report, we outline a few reasons for this stance.
We remain bullish the yen, despite the BoJ maintaining yield curve control. In this report, we outline a few reasons for this stance.
This insight presents an outlook on USD-Denominated Emerging Market Bonds.