Global Macro Outlook Q3 2023: The long and winding road
Macroeconomic Strategy Team
6 July 2023
Key takeaways
Recession postponed, not canceled—Despite the aggressive policy tightening we’ve seen so far, economic activity in developed economies proved to be more resilient than expected amid a strong rebound in the services sector.
Inflation is still too sticky at uncomfortable levels—While headline inflation is easing, core inflation remains stubbornly high, and it isn’t just due to services inflation: Goods inflation is inflecting higher after a period of decline.
We believe central bank policy easing will be more gradual than consensus expectations—From the Bank of Canada to the Reserve Bank of Australia to Bank Negara Malaysia to the U.S. Federal Reserve, central banks around the world are proving to be more hawkish than expected.
Shifting geopolitics and the need for a new market playbook—There are signs that we’re entering a new global regime, requiring a rethink of how risk assets respond to changes in the macro backdrop. To be forewarned is to be forearmed. We continue to believe:
1. The market is premature in its pricing of dovish pivots from central banks, both in terms of timing and magnitude.
2. There’s a risk that even if the Fed pauses in the coming months, the next move could be more tightening, not easing.
3. Markets need to reassess the central bank put for asset prices.
2023 was a tumultuous year for equity markets and the healthcare sector. For 2024, we maintain a sense of considerable optimism for the performance of healthcare equities and the underlying key subsector themes.
With interest rates appearing to have peaked and lenders’ deposit costs easing, 2024 could turn out to be a far more hospitable year for U.S. regional banks than 2023.
Asia REITs offer investors a unique income opportunity in the new year as rates have likely peaked with the possibility of declining borrowing costs in 2024.
If we focus too much on chasing the highest yield and upfront yield generation, we could suffer from early capital depletion and miss the total return opportunity towards the later stages of the investment journey.
Amid volatile market conditions and higher interest rates, seeking security by burying your savings in a deposit account is tempting. As the saying goes, “cash is king”. Or is it?
A “Better Income” approach seeks to understand an investor’s investment objective alongside the underlying risk of certain levels of income generation. “Better” income may not refer to the highest income level but the stability and consistency of reasonably higher yields generated throughout various market cycles.
