The global macroeconomic landscape has been on a roller-coaster ride in recent years. However, things have begun to stabilise in 2023. In a recent study, Invesco points to prospects for a recovery in the second half of 2023 based on the economic data emanating out of the leading regions.
Invesco talks about the possibility of a ‘goldilocks’ economy, or a phase where steady economic growth prevents recession, but the growth isn’t enough to spur inflation. “A peak in the global monetary tightening cycle, coupled with stable growth and falling inflation increases the probability of a near-term goldilocks’ scenario, “opines Alessio de Longis, CFA, Senior Portfolio Manager, Head of Investments, at Invesco Solutions.
The asset manager further explains that the global financial markets have demonstrated strength over the past month and reports consistent outperformance in riskier and more cyclical sectors as compared to defensives and safe havens. “Near-term growth expectations are improving across most regions, led by resilience in US economic data above consensus expectations and important changes in central banks’ communications, showing light at the end of the global monetary tightening cycle, highlights Invesco.
According to de Longis, two job reports and two inflation reports in the US, scheduled ahead of the next FOMC meeting could just impact policy expectations by a meagre 25 bps. However, the European Central Bank’s (ECB) opinion could contrast with the Fed. He predicts, “ECB is likely to downgrade its growth projections as leading economic indicators still point to weakening momentum.”
Towards the east, the asset manager talks about the impact of the Bank of Japan’s (BOJ) decision to raise the upper limit for the 10-year Japanese government bond yield from 0.5% to 1.0%. “The move is intended to reflect the gradual rise in Japanese inflation expectations across market, business, and consumer sentiment surveys, allowing the BOJ to introduce greater flexibility in its purchases of government bonds,” indicates Invesco. The BoJ also indicates that it would maintain its accommodative monetary policy. The asset manager also states, “We don’t expect these developments to cause volatility and dislocations in Japanese or global government bond markets.”
Invesco elucidates that the narrower credit across sectors and regions, and better performance of equities against fixed income indicate cyclical repricing of the past month. The same is also evident through the outperformance of riskier segments like emerging markets and small-cap equities compared to developed and large-cap equities. “Our macro framework continues to suggest a recovery in the global cycle is likely to characterise the second half of 2023, hence supporting a cyclical stance for tactical asset allocation,” concludes Alessio de Longis.
Read the complete report here.
Read more
US Election
Trump 2.0 – What investors need to know now
Trump’s return to the presidency signals a mix of opportunities for US equities but raises global economic uncertainties.
Bellevue Asset Management
Demographics and AI drive MedTech stocks
MedTech investment case: What makes it attractive, which trends stand out?
Asia Equity
Why invest in Asia equity long/short now?
Investing in Asia has undergone significant changes in recent years. It might be the time for a different approach.
KKR
Multi-asset credit – the ‘all-weather’ strategy
Allocation to a multi-asset-credit strategy could optimise and manage risk dynamically.