Midmonth Chartbook

Global Perspective


August 18, 2023

We expect that the world economy will grow around 2.5% this year thanks to a resilient economy in the U.S. The Euro area economies are struggling with resurgent energy and agriculture prices. Meanwhile, the rest of the world’s deflationary trends, especially evident in producer prices, could translate into consumer prices.  

We expect central banks in European countries, especially the U.K., to continue raising policy rates due to stubborn inflation. In contrast, there is a debate around whether the Fed is done hiking or has just one more left. European major economy manufacturing surveys show slowing activity as Germany’s troubles impact its neighbors. We have reduced our 12-month Euro outlook to $1.15 = €1, with U.S. consumer inflation hovering above 3%.

We remain underweight the international developed markets. Mediterranean economies have been solid outperformers, with tourism activity better than expected. The diverging rate policies have resulted in a weaker yen in Japan, a trend that could continue for the rest of the year. We have updated our 12-month Japanese yen view to $1 = ¥150. U.K. inflationary pressures could keep rates higher, supporting the currency. We have updated our 12-month British pound view to $1.3 = ₤1.

We remain underweight emerging markets. China, which is a big part of EM, is struggling to recover post-Covid. Additionally, we see currency devaluation risks in vulnerable economies like Turkey, Argentina, Egypt, Pakistan, and Nigeria.

Chinese officials decided to discontinue publishing youth-unemployment data, raising concerns about the availability of macro-economic data for foreign investors. Chinese consumer confidence is weak, with homeowners feeling the brunt of the drop in house prices, dragging down retail sales. Consumer prices are flat, bucking the global inflation trends. Plentiful stimulus chatter entertains daily headlines with no real follow-through so far. Officials have refrained from a big-bang-style stimulus similar to what was deployed during the years of the global financial crisis. We expect depreciation in the renminbi, which could cause a similar reaction from its Asian counterparts.

global perspective table   Chart shows Global equity Section: International developed markets remain less attractive but are improving Emerging markets are less attractive. Global fixed income Section: International developed markets – hedged are less attractive. International developed markets – unhedged are neutral. Emerging markets sovereign – hard currency is less attractive. Emerging markets corporates – hard currency is less attractive. Emerging markets sovereign – local currency is less attractive.

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