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:
Retain expectations of Fed hiking cycle to have terminated, base case only 50bp easing next year. ECB hiking cycle is also over. Imminent end to hikes globally and the prospect of weaker growth as rates are kept higher for longer support fixed income preference, specifically quality bonds. Today’s high bond yields offer an attractive opportunity to lock in rates and should outperform in most Fed rate scenarios over next 6-12m. Project 10-year US Treasuries to offer 10-15% total returns. Undersupplied market and strong fundamentals support oil prices, expect USD90-100/bbl range and will not move past USD100/bbl on a sustained basis over next 12m.
Euro Area and UK 2024 recession not anticipated, but GDP forecasts lowered to 0.6% (from 1.1%) and 0.8% (from 1.1%) respectively. Expect policy rates in Euro Area and UK to not be lowered before H2 2024. Once Fed rates peaked, project non-US markets to recover due to appreciating exchange rates against the USD. Across sectors, traditional and alternative energy present opportunities. Higher recessionary pricing and the geopolitical necessity of maintaining adequate energy supplies are accelerating the value and profitability of alternative energy.
Chinese policy stimulus foretold, but unlikely to be fast cure-all stimulus package. Expect one more PBoC rate cut this year. BOJ to abandon YCC in Q4.24 and policy management will shift from behind the curve to data dependency. Australia to narrowly avoid recession and rate cuts from May.24. US recession likely to begin Q4.23. Fed terminal rate reached. Moderate three-quarter Euro Area recession from Q3.23 driven by sharp fall in investment (-1% GDP). ECB hiking cycle over, terminating at 4% and cuts from Q3.24. UK GDP to contract by 0.7% over 3 quarters from Q3.23 because of reduced household spending. BoE rate cycle peaked at 5.25% and no cuts until Q4.24.
Recession risk in first two quarters of 2024 increasing as year end approaches. Anticipate mild to intermediate recession in early 2024 and finishing the year with less than 1% growth in North America. Project inflation to fall further then consensus. Fed rates terminated, rate cutting to begin early 2024. Moved equity exposure from overweight to neutral. Shift to overweight fixed income from neutral likely soon. Expect USD to fall long term, and therefore JPY, EUR, GBP and CAD to strengthen.
Data suggests that soft US landing now possible, with inflation coming down and growth cooling, not collapsing, but the risks of harder landing still present. Expect one additional 25bp Fed hike in November, then unchanged policy rates through mid-2024 and 50bp rate cuts starting 3Q24. Project no additional BoE tightening on back of UK core inflation unexpectantly slowing to 6.2% from 6.9% versus consensus expectations of 6.8%. Central banks signalled a “higher-for-longer” interest rate regime. China's activity data for August beat expectations and economic recovery gaining momentum. India annualised GDP growth forecast for next five years at 6.5%.
Soft US landing expected as a consequence of positive data across the board, despite 4th quarter slowdown possibility in consumer spending. Fed and ECB rates peaked. Central Bank pauses will help reduce overall bond market volatility, working to the relative advantage of assets that pay investors to hold them like corporate credit. With the economy late in its current cycle, early-cycle performers such as consumer and housing stocks are underperforming while energy and industrials should continue to outperform.
* 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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