Inflation

Indian EPS growth is set for major disappointments vis-à-vis the lofty expectations. Weak domestic demand amid tight fiscal and monetary policy entails more downside in stock prices. Stay underweight.

As the Fed meets today, we explain what it did wrong in 1970, 1974, and 1980 that prevented inflation from being exorcised, and the lessons for 2023-24. Plus, we identify a currency cross that could rebound in the next year.

In Section I, we discuss why the rally in stock prices over the past month reflects the soft-landing view, and why that is not a likely economic outcome. US inflation is slowing, but target inflation remains elusive. Meanwhile, cracks in the US labor market are already apparent, and there is strong evidence against the view that US stocks are appropriately priced for an eventual US recession. This underscores that conservative investment positioning is still warranted. In Section II, we check in on the indebtedness risk of several major economies, and examine whether these risks exist primarily in the household, nonfinancial corporate, or government sectors. While there are limited cyclical implications of recent trends in global indebtedness, there are several problems that will eventually “come home to roost” – particularly in the US and China.

An important annual event is when long-time client Mr. X visits BCA strategists at the end of each year to talk about the economic and financial outlook and a write-up of the discussion is published as our Annual Outlook report. Recently, BCA’s former Chief Economist Martin Barnes had the pleasure of a chance encounter with Mr. X at an airport lounge, and this report is an edited transcript of their conversation.

Inflation is hot, but inflation expectations are not. We explain the answer to this apparent puzzle and discuss the investment implications. Plus we identify two commodities that are at imminent risk of reversal.

A benign disinflation is probable during the remainder of 2023. Unfortunately, just when most people become convinced that a recession has been avoided, a recession will begin.

There are several widespread market narratives regarding US inflation, the Fed’s policy, global manufacturing/trade and China’s recovery that we disagree with. In this report, we explain our reasoning and where it puts us in terms of investment strategies.

Innovative Tech will face macroeconomic headwinds in a new “higher for longer” interest regime. Yet, the long-term opportunity of the cohort is tremendous. Investors need to be judicious with the timing of adding new capital to these themes to bolster long-term returns.

Through February and March, the number of US ‘job losers’ surged by almost half a million. Constituting the largest two-month increase in Americans who have lost their job since the depth of the pandemic. Unless we see a big drop in the number of job losers in the coming months, the correct investment strategy is still to position for a US recession that starts in 2023.

Is there a lot of cash on the sidelines ready to be deployed? Would the US recession not be bearish for the US dollar and help EM like it did in the early 2000s? Why can the US investment playbook of the past 15-25 years not be used in this cycle?