Individual investors are often bombarded with specific stock calls and targets.
However, we believe you can get a better medium to long term perspective by considering asset class, sector, thematic and macro economic views.
To help you, every week, we pour through the research produced by some of the larger institutions, and summarize their market thoughts.
Below are this week’s 6 updates:
US Recession probability reduced by 5% to 50% and Sub Trend growth probability increased by 10% to 50%. Median time between last rate hike and first cut is 8 months. Fixed Income tilt appeals given consistently positive historic performance of US Treasuries following a Fed tightening cycle. Quality stock bias remains, seeking higher margins, strong balance sheets and proven management teams. Good examples found in Technology and Industrial sectors, while classic defensive Consumer Staple and Utility stocks are overpriced.
US is relatively unique in its lack of sensitivity to short-term rates in comparison to other economies. Broad index level progression in equities to stay fairly muted while bond yields continue to rise, unless there are significant upgrades to earnings expectations. Brent crude oil 12m forecast upgraded from $93pb to $100pb as result of reduced OPEC supply and rising demand expected to more than offset oil supply from the US.
Policy rates may have peaked, yet central banks will not cut rates to levels that stimulate growth any time soon. Recession still a possibility, but more importantly expect economy to flatline for another year. Overweight Japanese equities as accelerating share buybacks, other shareholder friendly corporate reforms, strong earnings and still-accommodative monetary policy boost their appeal. Overweight hard currency EM debt due to higher yields and cushioning from weaking local currencies as EM central banks begin policy rate cuts.
Provided inflation doesn’t reaccelerate and the Fed does not cut rates for roughly a year, expect 10yr Treasury Yields to not climb higher than current 4.65% and to fall to 4.2% by Sep 24 as economic growth slows and unemployment climbs by 0.5%. Project Sep 24 Benchmark rates at 4.75-5.0% US, 3.5% Eurozone, 5.00% UK, 0.10% Japan and 3.15% China. Sep 24 forecast for Crude oil, Gold and Copper at 88, 2,150 and 8,800 respectively.
Higher for longer policy rates cemented by strong US labour market and stabilising activity in China and Europe. US Labor market data undermine prior signs of gradual slowing, highlighting Fed’s lack of traction. Nowcasting models suggest Eurozone will contract in Q3, posing downside risks to current Barclays forecasts. UK data did little to alter narrative of weak activity outlook and continued disinflation. BoJ increasingly recognising effect of tightening in Labor market on wages and prices. China holiday data and mixed PMIs suggest recovery momentum remains weak and fragile but economic downturn likely over. EM Asia prints surprised on the upside but will not change rate trajectory. In EEMEA, the CNB stayed on hold, while the NBP and NBK cut rates but with less dovish guidance. Monetary easing expectations in Latin America have dampened because of inflation improvement.
Although rates expected to fall and for growth to slow, still forecasting no recession. Rising government debt-to-GDP ratios are present in the U.S. and elsewhere but with a divided U.S. Congress, improvement in deficits is unlikely to happen soon, suggesting higher-for-longer rates. Investors should rely on market assets and not overweight cash no matter how tempting higher short-terms yields may be.
* Please note these are not the thoughts or analysis of illio but the respective institutions. We have summarized what we believe are key points. We assumes no responsibility or liability for any errors or omissions in the content of this site. The information contained herein is not intended to be a source of advice and the information contained in this website does not constitute investment advice.
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