Guide to the Markets: New daily edition
We’re excited to announce the launch of our new daily updated Guide to the Markets. Hear from Karen Ward, Chief Market Strategist for EMEA, as she introduces the daily Guide, and shows how you can access all the latest market and economic data, wherever and whenever you need it.
Key themes for 3Q 2023
Too good to be true
Markets have become increasingly optimistic that inflationary pressures will recede even if economic activity remains robust (Guide to the Markets – Europe pg 7). This expectation that Goldilocks will return has buoyed both stock and bond prices this year (pgs 48, 72), but such a benign scenario seems too good to be true. We expect the central banks will need to maintain their foot on the brake to drive away excess inflation (pg 9). A recession is still our base case.
Boost resilience
Given the recent rally, neither equity nor credit markets appear priced for a period of economic weakness. Against this backdrop we believe that investors should focus on high quality credit (pg 70) and look to boost the resilience of an equity portfolio via exposure to strong balance sheets, resilient dividend payers and regional diversification (pgs 48, 51, 53). We caution against having too much confidence that large cap tech will prove defensive in an earnings recession (pg 65).
Think more broadly about diversification
Real yields in core government bonds are more attractive than they have been in over a decade (pg 68). If a recession is accompanied by a quick dissolution of inflationary pressures, core bonds will provide ballast to a portfolio (pg 73). But 2022 is a reminder that inflation is not dead and can be extremely damaging to the price of stocks and bonds. Alternatives are needed to insulate a portfolio from inflation shocks (pg 78).
From abundance to scarcity
Although headline inflation will fall further in the coming months, we do expect more inflation volatility as the global economy enters a period in which scarcity of key commodities becomes more apparent and problematic. Our key concerns centre on low carbon energy, materials, food and water, and labour markets (pgs 16, 83, 84, 86).
