経済成長

Risk assets would perform well over 12 months only if inflation falls to 2% without triggering a recession. That would be unprecedented. We recommend investors stay defensive.

President Erdogan and the Justice and Development Party emerged as the winner of the Turkish general election which was concluded yesterday. This victory means that their expansive policies of the past decade will continue, and Turkish assets will suffer. Across the Aegean, the Greeks voted to reelect the New Democrats under the leadership of Prime Minister Mitsotakis. Their fiscal prudence and structural reforms will be continued as voters had rewarded them with another term in office. Go long Greek versus Turkish equities.

The Reserve Bank of New Zealand hiked rates this week to 5.5%. There are many reasons to expect that to be the last rate hike for this cycle – a development that is positive for New Zealand bonds but bearish for the New Zealand dollar.

The Reserve Bank of New Zealand hiked rates this week to 5.5%. There are many reasons to expect that to be the last rate hike for this cycle – a development that is positive for New Zealand bonds but bearish for the New Zealand dollar.

In Section I, we review the three possible economic scenarios over the coming year, and underscore that the “soft landing” scenario remains improbable. A “no landing” scenario could occur, but it would ultimately lead back to the recessionary path and thus is not a basis for investors to maintain pro-risk portfolio positions. US stock prices continue to be buoyed by rate cut expectations, but nonrecessionary cuts still appear to be a long way off. In Section II, we present our best estimate of the inflationary threshold that results in a positive or negative stock price / bond yield (SBY) correlation, and whether investors are likely to approach this level over the coming one-to-two years. US core inflation does not likely need to return to the Fed’s target in order for the SBY correlation to return to positive territory, but a move back to a positive correlation will very likely occur in the context of falling equity prices.

The conventional economic thinking about the likely impact of AI is misguided because it extrapolates linearly from what AI can do today to what it can do tomorrow. Just as the investment community and the broader public were blindsided by the exponential rise in Covid cases during the early days of the pandemic, they will be blindsided by how quickly AI transforms society and the economy.

A restrictive policy by the ECB and a weak manufacturing sector will create headwinds for European stocks this summer. How should investors position their portfolios in this context?

The conventional economic thinking about the likely impact of AI is misguided because it extrapolates linearly from what AI can do today to what it can do tomorrow. Just as the investment community and the broader public were blindsided by the exponential rise in Covid cases during the early days of the pandemic, they will be blindsided by how quickly AI transforms society and the economy.

If the recession begins this year, it is unlikely to be mild, because inflation will not have fallen by enough to allow the Fed to cut rates aggressively. In contrast, if the recession starts in 2024 or later, when inflation is likely to be much lower, the Fed will be able to cushion the blow. Our base case remains a 2024 recession but the risks around that view have increased in light of recent banking stresses.