Introduction
As the lagged effects from monetary policy tightening emerge and fiscal policy continues to be normalised, we anticipate a continued, yet modest, slowdown for developed economies in the coming quarters. In the US, we predict a robust labour market amidst gradually normalising inflation will enable the economy to remain resilient in the slowdown. In comparison, we predict European economies to experience less favourable momentum as the trend for wages differs to that of inflation, albeit labour markets are in good shape. Therefore, activity will remain sluggish as the tightening of monetary policies continue to hinder household purchasing power. The outlook remains disappointing in China as well, with economic policy support expected to remain insufficient to offset the woes in the real estate market.
Central banks are reaching the peak of their rate-hiking cycle, but not yet the pivot. The recent uptick in oil prices should not derail the ongoing decline in inflation. Rates at the major central banks seem to have reached their peak but the monetary authorities will likely await clearer signs that core inflation is beaten before cutting rates. The exception in this scenario is the Bank of Japan, which could gradually tighten its highly accommodating policy.
We are standing by our strong diversification and global positioning, which have allowed us to take advantage of the rally in equities since the start of the year, while retaining some protection against any renewed turbulence. We maintain our preference towards US equity markets, which stand to gain from the improved economic outlook. Finally, we are moving to neutral on the Japanese currency, which should halt its decline in the new monetary order.
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 20/09/2023, publication completion date.