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    1. Guide to the Markets

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    Guide to the Markets

    Trends for the economic scenario and markets.

    Check out below the main perspectives for the global economy and markets. Gabriela Santos, Global Markets Strategist, highlights the main themes and concerns that impact investors and their decisions, based on information from Guide to the Markets – Latin America.

    Guide to the Markets

    09/05/2023

    A summary of the latest trends in the markets (May 2023)

    Despite ongoing concerns about a recession in the U.S., the evolving U.S. regional banking stress, and geopolitical tensions, April was another positive month for global portfolios, with stocks +1.5% and bonds +0.4%.

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    The highlight of the month was the resilience of the global economy despite higher interest rates, elevated inflation, and banking stress. The April PMI surveys beat expectations for developed and emerging economies, especially on the services side at a strong 54.4. In Europe, falling energy prices has provided a lift to consumer spending and is stabilizing the manufacturing sector. Over in China, PMI data and official government data beat expectations, showing a powerful boost is occurring in domestic household consumption as a result of the reopened economy and the real estate contraction is easing as a result of policy stimulus. There, 1Q GDP grew nearly 12% quarter-over-quarter annualized and the April services PMI points to continued momentum this quarter, sitting near a twelve-year high. Over in the U.S., despite ongoing concerns about an upcoming recession, 1Q GDP showed the economy grew 1.1%, with a strong lift from consumer spending of nearly 4% annualized. However, concerns about a recession in the second half of the year continued, as a result of an expected tightening in credit conditions as a result of the regional banking stress that began in early March. 

    Over on the inflation side, falling energy and goods prices continued to pull down global headline inflation. However, still strong labor markets and strong demand for services has kept global core inflation sticky so far. This has caused a divergence in expectations about next steps from various central banks: investors now expect interest rate hikes to continue in Europe over the summer, while the Fed is expected to hike only one more time in early May – and then shift to rate cuts starting in 3Q. This is as a result of expectations of credit tightening up ahead, which would pull down U.S. core inflation and push up unemployment. As a result, U.S. fixed income outperformed other developed markets and the U.S. dollar fell 1% during the month.

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    Within equities, the better-than-expected economic data in Europe led European equities to continue its standing as the best performing major equity market this year, up another 4% in April. On the other hand, despite China’s better than expected economic data, its own equity market was down 5% in April (continuing its correction begun in late January) as investors wait for more confirmation of how long its economic recovery will last. Lastly, despite recession concerns, U.S. equities were up a strong 1.6% as a result of strong 1Q earnings from the technology sector, boosted by defensive areas like software, as well as ongoing cost cuts, and excitement about artificial intelligence. This is an important reminder that the U.S. stock market and the U.S. economy are two very different things.

    Looking towards May, all eyes will be on central banks especially the Fed as it may signal a pause in rate hikes ahead, as well as on credit surveys in order to gauge the effects of the rate hiking cycle of the past year. While investors will continue to focus on recession risk and what other areas of the markets may suffer the consequences of higher interest rates, investors should focus on long-term investment opportunities as a result of valuations and/or conviction around fundamentals. This includes: U.S. quality fixed income, European and China/EM Asia equities, and select opportunities within the U.S. equity market.

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