Fixed Income
If we look at global growth as an aircraft, the plane is experiencing failing engines and will lose more altitude in the coming months. Yet, neither Chinese authorities, nor the Fed or the ECB will be quick to come to the rescue as global growth downshifts. These dynamics herald a stronger US dollar and lower EM risk asset prices.
The broader rally that started in June is premised on a Goldilocks narrative that will prove to be a fairy tale. Either by stubborn inflation. Or, by higher unemployment that shows that the war on inflation is far from costless. Or, by both. We discuss the implications for stocks and bonds. And we reveal our new top long dollar cross.
US bond investment takeaways from this week’s PCE and employment releases.
A global recession continues to be likely over the next 12 months. The impact of tighter monetary policy is slowly being felt. Government bonds look increasingly attractive as a safe haven.
In Part 2 of this series, we prescribe the treatment needed to produce a recovery for the ailing Chinese economy. Authorities will only panic and unleash “irrigation-style” stimulus if the unemployment rate rises sharply, or a financial crisis unravels in onshore markets. This is not yet the case.
