Economic Growth

Bank failures are another ‘canary in the coal mine’ warning that a US recession is imminent, yet stocks, bonds, and the oil price are still a long way from fully pricing it.

The growth and inflation profiles of the three central European countries are set to diverge. The outlook for Polish and Hungarian Bonds are not attractive anymore. Book profits on them. Instead, initiate a new trade: pay Polish / receive Czech 10-year swap rates.

The first legislative meeting of Xi Jinping’s third term suggests that Chinese policy is continuous and consistent with the previous ten years, which is negative for long-term productivity.

China’s labor market is polarized between high unemployment among university graduates and an acute shortage of blue-collar labor. The high jobless rate among young workers is structural and will not decline a lot even during an economic recovery. Given the structural scarcities of blue-collar workers, the authorities will be less inclined to resort to their old playbook of stimulating infrastructure, construction, and manufacturing.

The Chilean economy is entering a recession. Inflation will drop rapidly and the central bank will cut rates meaningfully in H2 2023. We continue to recommend a structural overweight across Chilean risk assets on the basis of falling inflation and local yields, record cheap valuations, and dissipated political volatility.

A run of hot January data shook up financial markets, but we think they overreacted. We remain constructive on equities and the economy in the near term.

In this week’s report, we speculate on the evolution of euro trading in light of the near-term hiccups, but tremendous value that can be unlocked for longer-term investors.

In this week’s report, we speculate on the evolution of euro trading in light of the near-term hiccups, but tremendous value that can be unlocked for longer-term investors.

Rather than teetering into recession, global growth has firmed since the start of the year. While we still expect inflation to decline, the risk that central banks will need to lift rates more than discounted has increased. Long-term focused investors should start raising cash allocations by trimming their equity holdings.

The rebound in growth is pushing up inflation. More aggressive monetary policy is likely to trigger recession over the next 12 months or so. Investors should stay defensive.