Fiscal Policy

Momentum, high cash balances, FOMO, and expectations of soft landing drive the market higher. This rally may continue for a while, but macroeconomic headwinds are intensifying and will eventually derail the rally. It is too early to celebrate victory.

Assuming yesterday’s policy rate hike is a sign that Turkey is finally veering towards orthodox economic policies; should investors rush in?

We are strategically bullish on the outlook of the energy sector. Domestic and external political constraints asserted themselves, restraining the most negative impulse against this sector by the Biden administration. Go long energy versus cyclicals (ex-tech).

China is facing a risk of deflation. Marginal interest rate cuts and targeted stimulus will be insufficient to boost China’s growth given the current deflationary mindset and the danger is that the economy may be entering a liquidity trap. Deflation is bullish for government bonds, but negative for equity prices. Chinese share prices will continue to decline.

The normalization of oil storage markets in the Northern Hemisphere; strong demand, aided by China stimulus this year; and continued production discipline supports our view Brent prices likely have bottomed, and will move higher from here. We raised our 2023 Brent forecast $2/bbl to $92/bbl. Our forecast for next year is revised upward by $5/bbl to $120/bbl. Price risk remains to the upside, particularly if KSA exercises its option to extend production cuts of 1mm b/d.