Introduction
Geopolitical risks are on the rise with markets already unsettled. The impact of the Israel-Hamas war on global markets should remain modest, providing that the conflict does not escalate to other countries. Nevertheless, it is testing the nerves of markets that have been in troubled water for weeks. The United States economy remains robust while persistent concerns surrounding inflation risks could revive upward pressure on interest rates. From geopolitical tensions to rate pressures, risks are diverse and as such, blur the economic outlook further.
We stand by our central scenario of a slowdown in economic activity. Nonetheless, risks are beginning to stack up. We still anticipate developed economies to slow over the next few quarters as fiscal policies continue to normalise and the lagged effects of monetary policy feed through. However, the adjustment will be mitigated by stubbornly strong labour markets and the easing of inflation which will restore household purchasing power. The United States economy should continue to hold up better than the Eurozone and the United Kingdom. This suggests the major central banks have probably reached their interest rate plateau but will likely await clearer signs that core inflation is on a steady downward path before easing their monetary policy. We retain our strategic balance between equity and bonds but downgrade our view to the US bond markets. We uphold our highly diverse global positioning, which has enabled us to catch the rally in equities since the start of the year, while retaining some protection against any fresh turbulence. Amid continuing upward pressure on the long end of the US curve, we have downgraded our view on US sovereign bonds to neutral and moved to a dollar overweight. Better economic prospects provide the rationale for maintaining our preference for United States equity markets.
In accordance with the regulations in force, we inform the reader that this document is qualified as a promotional document. Unless specified, all figures and statistics in this report are from Bloomberg and Macrobond on 20/10/23, publication completion date.