Japan

Inflation won’t fall fast enough for the Fed to cut rates preemptively before recession arrives. The risk/rewards balance is unfavorable for risk assets. Stay overweight bonds versus equities.

In this Insight, we review the performance and rationale for our current set of tactical fixed income trade recommendations. Our highest conviction positions also happen to be our most successful trades: positioning for a narrowing of the German bund-JGB spread and wider Japanese inflation breakevens.

Labor markets are softening in most developed economies, as is usually the case in the lead-up to recessions. Our base case is that the global recession will begin in the second half of 2024, but we will be monitoring our MacroQuant model on a daily basis for confirmation.

High interest rates will eventually cause growth to slow. Signs of stress are already starting to show. Stay cautiously positioned.