Macro Matters August 2023

(Source: Merlea Macro Matters)


Global inflation continued to slow broadly, fuelling hope that central banks would begin to ease up on their aggressive tightening policies. Despite the optimism, however, core inflation in most developed markets, driven by wage pressures and full employment, remained well above central bank targets. The question remains: How long can softer inflation prints be sustained against a still- resilient macro backdrop? And while central banks would prefer not to hike interest rates further, they are also clearly willing to do so if needed to bring inflation fully and sustainably under control.

This graph of the latest monthly readings of annual inflation rates globally shows inflation peaked in the US, the UK, Canada, and Australia late last year, and has been coming down steadily since.

Fears of a global recession abated on favourable employment numbers and the beginning of second-quarter corporate earnings, which exceeded expectations. The ability of corporations to maintain margins in the face of wage pressures and higher interest rates will likely remain a key indicator for second-half market results. The Fed would like to see wage increases start to soften to prevent a cycle of further price increases, in which businesses try to maintain their profit margins by passing higher wage costs along to customers.

The United Kingdom and China, notable laggards in the first half of 2023, both posted strong returns, narrowing their performance deficit to the rest of the world. China has continued to invest heavily in commodities to insulate the country from growing geopolitical tensions with the United States. The US economy was still growing despite another 25-basis-point rate increase by the Federal Reserve as it attempts to engineer a soft landing.

Long-term interest rates ticked higher for a second straight month across the globe while the yield curve remained inverted in most developed markets except for Japan. Precious metals and oil prices moved higher in July as economic growth prospects improved. In another reversal from the first half of 2023, sector performance was evenly distributed in July. Energy and communication services led; healthcare and utilities lagged. Big tech stocks have run very far making valuations rich and it may be time for investors to trim their big tech holdings and lock in some profits.


Focus is shifting to the US bond market with higher yields, rates volatility and a stronger USD likely to impact some sectors of the market. I continue to be cautious towards the bond market and sectors that are sensitive to higher rates such as growth and

mega-cap. Especially with the Equity Risk premium falling to the lowest level in a decade. ERP is calculated by deducting the 10yr bond yield (which is the risk-free rate) from the earnings yield on the S&P 500.

The US 10yr managed to break above historic resistance and make new 14yr highs. Stocks responded to higher real rates of interest and stronger retail sales that will keep pressure on the Fed.

Whilst most of the investment banks have held the consensus view that bond yields will fall this year, some bankers have broken ranks and revised their second half forecast for the 10yr higher from 4.25% to 4.60%.

There are many times in history where the bond market reprices the long end of the curve in a matter of weeks, and this seems like one of those times. I have been surprised how low US long-term rates have remained considering structural changes that are likely to lead to higher levels of long-term inflation, including de-globalisation, higher defence costs, the energy transition, growing entitlements, and the greater bargaining power of workers.

Several powerful tailwinds are driving up the long end of the US yield curve. Rising US government issuance and supply (Treasury is not even a quarter of the way through selling the estimated $1.2 trillion in new bonds to replenish the coffers) is one reason to be bearish.

Other reasons include the abrupt change to the Bank of Japan’s YCC policy last week, that narrows the rate differential and could see repatriation of capital back into JGBs, which now offer yield. Stubborn inflation could see the Fed likely hold rates up for longer than markets currently expect. The Fitch downgrade of US debt from the AAA rating won’t be supportive either and could encourage diversification away from dollar assets.

Upside risks on rates could add more pressure to stocks in the near-term. The US10yr has pushed up to the highs of last year, and the highest levels in 14 years. Near-term, the 10s could rally with the yield pulling back before a retest of the 4.2%. However, it is likely only a matter of time before the yield moves into a new range above 4.5%. While the long end of the US yield curve continues to advance higher, futures markets now see a nearly 89% chance that the Fed will keep rates unchanged at next months’ FOMC.

Higher bond yields are going be a significant headwind to expensive high multiple stocks, which favours a deeper correction. We have hedged against inflation via commodities exposure across our portfolios including precious metals and energy.

Listed Property

For only the third time in 20 years, passive A-REITs now trade at 25-30% discounts to net tangible assets (NTA), significantly below their long-term averages (-1%).

However, with the obvious challenges facing the sector – higher interest rates are pressuring the consumer – and declining valuation concerns now priced in, there are several supporting factors which are driving our more optimistic outlook.

Source: YCM, Macquarie Bank Research. Basket of passive A-REIT stocks: CQR, DXS, GPT, VCX, SCG. NTA’s at 31 Dec 2022

In the face of higher interest rates, which are yet to flow through to book valuations, passive A-REITs trade -28% below NTA implying ~20% falls in gross asset values. While that’s arguably fair for the Office sub-sector (vacancy levels have already tripled to 15% in five years), Industrial assets enjoy persistently strong rental growth from outstanding fundamentals, while Retail has already materially de-rated post-COVID.

Dividend yields of ~6% are attractive for the first time in many years. While higher interest rates will likely drive some A-REITs to re-base dividends, we believe current share prices provide a margin of safety. In our view, dividend growth is set to re-emerge faster for those REITs with lower gearing and with leases exposed to CPI escalators, providing a partial and effective income inflation hedge.

Also, interest rate-sensitive sectors like A-REITs stand to benefit alongside the inevitable return of stable/declining interest rates. Calling the timing of such is difficult, but history builds a convincing argument on the importance of being positioned ahead of time.

The evidence shows A-REITs as the most ‘unloved’ sector on the ASX today. Outside of the banking sector, domestic active equity managers are positioned most underweight A-REITs (with consensus overweight positions in IT and Industrials).

The greater expected cap rate movements are arguably already reflected in share prices, with most of the REIT’s trading at a 20%-30% discount to their book value. The key to closing the gap is either bond yields moving down and/or REITs achieving earnings growth to offset the rise in the cost of capital and cap rate expansions.

Australian Equities

The ASX200 continues to be rangebound with formidable resistance at the historic highs above 7500 and key support at 6900. The index will likely remain rangebound until we have greater clarity over monetary policy from the RBA and a clear view of where China’s economy is headed.

The ASX remains a stock pickers market and I continue to advocate carrying some cash within portfolios to take advantage of opportunities. Given the slowing economic backdrop, we view the risks to FY24 earnings forecasts as skewed to the downside. While the macro picture will likely create some headwinds, it will not be sufficiently dire to rule out some decent earnings growth across a reasonable number of large cap stocks, in our view.

The Reserve Bank may finally be making headway against an exceptionally strong jobs market, warning in the August Board minutes that the employment market could sour. The piles of cash thrown around amid the pandemic saved jobs but stoked inflation. Now Australia has a central bank wanting to engineer a weaker jobs market and an economic slowdown.

Early signs that the jobs market “might be at a turning point” were among the reasons the RBA kept the cash rate on hold at 4.1% in August. They cited a small rise in underemployment, a fall in hiring intentions and wages, and improved labour availability as indicators that the hottest jobs market in five decades may be ending. The RBA has maintained the forecast that unemployment will climb to 4.5% by June 2025 as the economy softens.

As the labour market seems poised to roll over, Australia’s $11 billion renovations market is already on the skids. The first significant contraction in a decade for the repair and renovation sector has been driven by rate hikes and rising costs, signalling the end of Australia’s pandemic-fuelled renovation boom. The slowing spending on renovations indicates softer sentiment in a key driver of economic growth, home building.

In summary, the Australian market is going through a tougher period for earnings, in part due to its inherent skew towards the cyclical banking and materials (mining) sectors.

The mining sector earnings cycle is notoriously volatile and could surprise to the upside if Chinese growth is better than feared. As such, we are watching China stimulus developments closely, alongside the general global growth pulse, which has been better than feared lately.

For the banking sector, the fate of the domestic economy will be an important driver of top-line growth and bad debt outcomes. The sector has struggled against rising competition for both mortgages and deposits with net interest margins disappointing in recent results. The backdrop still looks relatively benign from a bad debt perspective, but with provisions at low levels and the economy slowing, a rise in bad debt provisions remains an earnings risk to monitor.

Our general view is to stay with quality, resilient earnings at this relatively early stage of the economic slowdown.

Global markets

While developed economies appear to be recovering well, there is a certain complacency present in asset prices. This

attitude poses a risk, given the high expectations of an economic upturn for which there is little concrete evidence. The financial headlines from the past weeks provide a glimpse into the economic dynamism of various global sectors.

In the US, despite earning beats from banks and airlines that showcased consumer resilience, retail sales didn’t meet expectations due to pressures on household budgets. Moreover, job growth remained modest. Meanwhile, the UK faced a drop in inflation rates while China’s GDP growth was less than anticipated.

The primary theme is a cautious approach investor should take in the second half of 2023 (2H23), considering the increased stock market valuations and persisting inflation pressure in the United States.


The Impact of Technological Developments

Furthermore, the growth of technology giants, particularly in the field of artificial intelligence (AI). Although AI has the potential to revolutionise economic productivity, it is crucial not to blindly dive into the hype.

Despite strong gains in mature stock markets in 1H23, these were driven by expansion in valuations rather than improved corporate profit forecasts. As the Federal Reserve (Fed) remains resolute in raising interest rates, conditions for global stock market growth have arguably weakened.

A big determinant of whether share markets can continue to move higher or resume the bear market in US and global shares that started last year, will be whether major economies slide into recession and, if so, how deep that is.

Our assessment is that the risk of a mild recession is high (particularly in Australia), but that at least a deep recession should be avoided. Global business conditions indexes (PMIs) – which are surveys of purchasing managers at businesses – will be a key warning indicator. So far, they have proven resilient. While slowing again after a bounce – partly due to China – they are at levels consistent with okay global growth.


The resilience in consumer spending has kept the economy growing solidly during the first half of the year. With the labour market remaining strong, consumers have been able to weather the headwinds of higher prices and interest rates. Business investment also increased in the second quarter as equipment purchases rose notably and investment in structures remained elevated. Consumer and business sentiment measures have stabilised recently as near-term growth prospects have improved, although future expectations have remained relatively pessimistic.

Fresh signs of labour market strength reinforced a picture of an economy with broad-based momentum despite rising interest rates. Layoffs retreated last month, and economic growth was more robust than initially reported in the first quarter. Other recent data showed increasing new home sales, orders for long-lasting goods, and consumer confidence. What has been evident is stronger-than-expected growth, tighter-than-expected labour markets, and higher-than-expected inflation.

At the start of the year, a recession was expected to have materialised by now. Indeed, consumers, workers, and businesses have faced challenges over the past year, with interest rates rising and inflation elevating.

Instead, the economy has continued to grow, even in pockets sensitive to higher interest rates. The housing market has been a key example. A historically low number of existing homes for sale helped push up sales of newly built ones. New home sales rose by double digits in June, far exceeding expectations.

The labour market has remained resilient despite the Fed’s actions. Employers have continued to add jobs, and the unemployment rate has remained near historic lows. Job openings have surpassed expectations, with millions looking for work in June.

Robust consumer spending and the solid jobs picture have bolstered the economy. The economy has remained reasonably healthy and has some momentum remaining. The consensus forecast should see the economy slipping into a mild recession, which likely will come later than predicted.

The consumer price index climbed 3% in June from a year earlier, sharply lower than the recent peak of 9.1% in June 2022.

With the Federal Reserve’s most recent interest rate hike in July, the policy rate now sits at its highest level in two decades. Progress has been made on the inflation front; however, the Federal Reserve will need more time to decide whether the trajectory points to a sustainable return to its 2% target. The cumulative effects of the 525 bps in rate hikes have yet to filter through the economy fully and should continue to weigh on economic growth through the second half of this year.


Even though inflation has slowed, largely due to the impact of government support measures, price pressures will abate only slowly during the second half of this year. We expect governments to increasingly pare back spending as rising interest rate burdens require fiscal consolidation. Annual inflation still runs close to three times the ECB’s price stability target of 2%.

Activity remains weak and could approach stagnation and technical recession in H2-23 in some countries. Tighter credit conditions will weigh down on firms and consumption decisions.

The near-term economic outlook for the euro area has deteriorated, owing largely to weaker domestic demand. High inflation and tighter financing conditions are dampening spending. This is weighing especially on manufacturing output, which is also being held down by weak external demand. Housing and business investment are showing signs of weakness as well.

Services remain more resilient, especially in contact-intensive subsectors such as tourism. But momentum is slowing in the services sector. The economy is expected to remain weak in the short run. Over time, falling inflation, rising incomes, and improving supply conditions should support the recovery.

The labour market remains robust. The unemployment rate stayed at its historical low of 6.5% in May and many new jobs are being created, especially in the services sector. At the same time, forward-looking indicators suggest that this trend might slow down in the coming months and may turn negative for manufacturing.

As the energy crisis fades, governments should roll back the related support measures promptly and in a concerted manner. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for a stronger monetary policy response.

Upside risks to inflation include potential renewed upward pressures on the costs of energy and food, also related to Russia’s unilateral withdrawal from the Black Sea Grain Initiative. Adverse weather conditions, considering the unfolding climate crisis, may push up food prices by more than projected.

A lasting rise in inflation expectations above the ECB Prices stability target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term.

United Kingdom

The UK economy will likely escape a recession thanks to a better outlook for energy prices, a more resilient global environment, and continued tightness in the labour market. We expect growth to remain weak though, with real GDP at just 0.3% in 2023, rising to 1.1% in 2024. The risks are skewed to the downside.

The United Kingdom is the only advanced country with wage growth above core inflation, risking a wage-price spiral. Inflation is broad-based and expected to remain end-2024. Growth will be flat at best, but all risks point to the downside. Core inflation will be difficult to tame in the short term amid persistent wage pressures on account of a very tight labour market due to the impact of Covid-19 and Brexit, while high mortgage rates add to the cost of living.

More monetary tightening is inevitable. Markets expect rates to peak well above 6.0%, but the BoE will have to choose between tightening too much – pushing mortgage rates higher and triggering a recession – and patience in attaining its inflation target.

A high share of variable-rate mortgages will reduce activity in the housing market and sustain pressure on rents, but house prices are unlikely to correct precipitously because of insufficient supply and the fact that around half of homeowners have no mortgage debt. Higher rates will also increase income on savings, thus moderating the overall effect of monetary tightening on activity.

The medium-term outlook is more challenging. The United Kingdom is the only advanced country that has not grown since 2019, with employment levels below the 2019 level. Official forecasts put UK GDP only 1pp higher by 2025.

Low potential growth imposes tight fiscal constraints. With taxes already rising – corporate tax was raised from 19 to 25% and income tax allowances have been frozen – public debt to-GDP ratio is unlikely to fall below 100% by 2025. Bringing debt down below 100% will require primary fiscal surpluses of 2.0% of GDP if long-term rates stay above 3.5%.

Growth Across Sectors Has Been Mixed

The latest survey evidence paints a mixed picture across UK sectors. The composite PMI has picked up in recent months, with the services sector consistent with relatively robust growth, while manufacturing has been pointing to a contraction.

 A labour shortage and reduced trade because of Brexit mean reforms to increase growth would be a way out, but free-trade zones and pinning hopes on AI are unlikely to move the needle. Looking ahead, slowing momentum across business activity surveys suggests that the second half of the year may prove more challenging. However, with a drawdown in inventories in the first half and the amount of industrial action slowing, even if overall demand softens slightly, growth rates could prove stronger.


Japan’s economy recorded impressive growth in the second quarter of 2023. Japan’s economy expanded at a much faster clip than forecast, as a surge in exports more than offset weaker-than-expected results for both business investment and private consumption. Gross domestic product grew at an annualized pace of 6% in the second quarter, marking the strongest growth since the last quarter of 2020. The figure exceeded economists’ forecast of 2.9% growth. Net exports contributed 1.8 percentage points to the expansion versus consensus estimates of 0.9 points.

Growth was again exclusively driven by the service sector in July, as manufacturing output contracted for a second straight month. The latest composite output reading, covering both sectors, is broadly consistent with GDP growing at an annual rate of just under 2%.

July flash PMI data indicated that services activity continued to expand solidly in July and at a rate comparable to June. This extends the growth streak in this sector that began last September. Continued demand growth, notably due to increased tourism activity, supported the latest improvement in service sector conditions.

That said, new business rose at the slowest pace in six months which, coupled with falling levels of outstanding work, foreshadows a possible further slowdown in services growth momentum in the coming months. Fortunately, the pace of outstanding business depletion is currently only marginal, though this remains a key indicator for further observation moving forward.

Meanwhile Japan’s manufacturing sector output remained in contraction. Manufacturing production has now fallen in 11 of the past 12 months. Although the rate of contraction eased from June, a sharper fall in new orders for Japanese manufactured goods in the latest survey hints at the likelihood for prolonged weakness of the manufacturing sector.

The deterioration in business sentiment, alongside the softening of demand conditions in the latest survey, suggest that we may have seen a peak for the recent bout of economic expansion in Japan earlier in the second quarter. However, there is not sign yet of the upturn stalling.

Consequently, for the Japanese equity market, which finds a broad correlation with PMI data, a recent peak in growth conditions suggests that equity price gains may slow in the coming months. Yen movements will of course likewise play a role here, with both the US Fed and Bank of Japan expected influence currency movements in the very short term.


During the past few days, some of the statistics China has published have caused a stir. Consumer prices in July were lower than a year ago, suggesting it might be on the cusp of deflation, which reflects a chronic shortage of demand in the economy. While it might seem great for China that it isn’t experiencing the inflation problem that is occurring in the West, deflation is never usually a good sign for an economy.

Domestic demand in China is weak. China’s economy is still recovering from zero covid and it hasn’t had the same scale of stimulus that occurred in places like the US, Europe, Australia,

And China’s foreign trade in the same month showed a sharp fall in exports due to weak global demand, with a sharper decline in imports signifying weakness in demand at home. There were murky factors affecting both, but the message is that something more serious is amiss in China. Indeed, China was widely expected to bounce back from the pandemic and there was a bit of a flurry early in 2023. Yet, consumption has generally been very subdued especially for big-ticket items such as cars and houses, and private investment, the backbone of China’s economy, which fell in the first half of this year, for the first time since such data was published many years ago.

A growing desperation around China’s economy calls for desperate measures. The central bank unexpectedly cut the 1-year medium-term facility rate by 15bps to 2.5% in a bid to provide support as the property crisis deepens and dampens consumer spending. This was the second cut this year and I believe opens the door for a cut in the loan prime rate later this month. The recently missed payments in the so-called shadow banking sector will further dampen consumer sentiment and are likely to speed up a policy response from Beijing.

Recent data was grim, weighing on investor sentiment. Property investment and sales extended steep falls in July. New construction starts by floor area have slumped almost 25% year-on-year. Industrial production growth slowed and was below expectations, while fixed-asset investment also slowed.

Unemployment ticked up in the major cities to 5.3% but more worrying in China is the massive levels of youth unemployment, exacerbated by the pandemic. China didn’t provide these figures, so we can assume they are worsening. Back in June, the jobless rate for 16 to 24-year-olds in cities hit a record high above 20%.

In the coming weeks and months, we should probably expect the authorities to ease financial and budgetary policies, housing regulations, and borrowing caps to finance infrastructure.

Emerging markets

For emerging markets, although its overall performance in the first half of this year seems to be inferior to the developed markets, we noted that many emerging markets are in fact still highly sought after by fund flows from within and outside the region, such as India, Korea, Taiwan, and several Latin American markets.

Looking forward to 2H23, we believe that emerging markets are more likely to take the lead in curbing inflation pressure. Therefore, as the valuations of developed stock markets have increased significantly, there may be higher upside potential for stock markets with interest rate cuts potential or loose monetary policies in the future.

In addition, as far as the Asian region is concerned, the economic performance of the mainland will still be a big determining factor. The central government may step up economic stimulus policies, which could bring another wave of market upside. However, we still need to pay attention to changes in geopolitics and Sino-US relations, which may cause market volatility any time.


Commodity markets continue to experience tension between micro and macroeconomic drivers, and between cyclical and structural dynamics.

While the macro environment continues to present near-term headwinds for commodities markets, the structural backdrop and key cyclical factors present one of the most favourable medium- to longer-term environments of the last two decades.

Looking out to the medium term, structural underinvestment in energy and metals over the past decade continues to dampen new production growth and has exposed limited spare capacity. Commodities have gone from a state of abundance during the 2010s to a state of structural scarcity, with the potential to constrain global economic growth, elevate inflation, and drive concerns around food and energy security.

We expect macro, geopolitical, and climate volatility to continue or increase in 2023 against a precariously tight supply backdrop in commodities. We will be watching several macro risks that could impact commodity supply-demand fundamentals, including Russia’s ongoing war in Ukraine, rising recessionary fears (amid higher rates and inflation prints), and continued economic slowdown in China. The coming year will not be without challenges for pockets of the commodities complex, but we remain confident that these risks are mainly cyclical, and the structural case for commodities remains strong.


US interest rates may remain high for a longer period, which is not good news for gold price performance in the short term. However, in the medium to long term, the sentiment of global central banks to de-dollarize and guard against geopolitical risks will support gold prices.


Global oil prices have shot up in recent weeks. The price of Brent oil, the global benchmark, has climbed 16% since a low in late June. West Texas Intermediate futures, the US oil benchmark, have risen 19% in that time.

We would expect crude oil prices to keep “grinding their way higher” on the back of production cuts by major exporters, better- than-expected global demand and relatively low global inventory levels. Demand, although not great, is doing better than many of us anticipated at the start of the year. We haven’t fallen into a serious recession, and consumer demand for things like flights and travel, and the things that drive-up oil demand are holding up well. The International Energy Agency has

forecast that global oil demand will rise this year to a record 102 million barrels per day on average. But global oil production is expected to rise to 101.5 million barrels per day, the agency said in a report last month.

Contributing to that supply shortfall are sweeping production cuts announced by OPEC+, an alliance of the world’s major oil producers, earlier this year to buttress oil prices. Further cuts by the alliance’s leading players — Saudi Arabia and Russia — have added to the upward pressure on prices.

Agriculture commodities

Global food prices have tumbled since July last year, when Russia and Ukraine signed a deal to allow the safe passage of ships carrying food and fertilisers from Black Sea ports to the world market.

But Moscow pulled out of that pact last month, arguing that it had been hampered in exporting its own products, and claiming that the main purpose of the deal — to supply grain to countries in need — had not been achieved.

The Food and Agriculture Organization of the United Nations said that its global Food Price Index rose in July compared with the month before, notching only the second increase since July 2022. A jump in the price of sunflower oil after the Black Sea deal unravelled helped boost the prices of vegetable oils more broadly, with that component of the index showing the biggest increase. Ukraine is the world’s biggest exporter of sunflower oil, according to the UN.

Inflation in consumer food prices remains high. In the euro area, which releases preliminary data early, it stood at 10.8% in July. The outlook for the global supply of key foodstuffs had “deteriorated” since the start of the year, and we expect higher prices as a result. Wheat supply is likely to fall into a “deep deficit,” following the collapse of the Black Sea deal and unusually hot and dry weather in other producing regions this year.

Still, it appears unlikely that we are going to revisit the peaks in prices reached in the wake of the Russian invasion of Ukraine.

Sector 12 Month Forecast Economic and Political Predictions
AUD 65c-74c As China’s post-pandemic reopening continues, it’s hoped that this will have a positive effect on the Australian dollar and lead to an increase in commodity prices. Concerns about future interest rate rises, both here and in the US, are expected to be a key factor in the six months ahead. And with the threat of a global recession looming too, how the AUD performs for the rest of 2023 remains to be seen.
Gold BUY

$US1700-/oz- $US2100/oz

Despite the challenges posed by monetary tightening, the strengthening of the dollar index, and persistent core inflation, gold prices have risen 8 per cent in 2023 so far. Experts find the outlook for this precious metal promising, primarily due to the easing of inflationary pressures which may result in the end of monetary tightening.
Commodities BUY

Despite the weakened macro environment in China, base metals prices were little changed as robust support levels held firm.

Base metal complex is forecast to be in deficit — that is, demand is likely to exceed supply in 2023. However, this is not going to create a positive impact on the prices. Because the rate of increase in supply is going to be higher than that of the demand.
Property BUY

Many REITs have now pulled back. But that’s good news for investors looking to pick up new shares with lower prices and higher-dividend yields.

REITs should perform well when interest rates fall, given that real estate fundamentals appear reasonably healthy.

Historically, REITs are one of the better-performing sectors during an inflationary period. Cash flow from property assets is strong and will probably get stronger over a longer-term horizon if our population continues to grow and the economy prospers.

Australian Equities BUY While responses on current conditions were weak, there was improvement when it came to forward-looking expectations on family finances and broader economy, no doubt linked to the stabilisation in the housing market and tight labour market.
Bonds Begin to increase duration.




The uncertain economic outlook triggered capital inflows into high quality IG corporate bonds, while short- and medium-term yields are currently attractive long-term valuations are attractive. In our assessment, fully reflecting monetary policy that is still expected to tighten a little further. Decelerating growth and tighter bank lending standards complement this view.
Cash Rates Two further cash rate hikes this year, bringing the rate to a peak of 4.60%. Cash has appeal as a means of diversification and as a complement to the potential attractions of fixed income markets, and we maintain a moderately constructive view at this time.


Global Markets
America Underweight While we still expect the US economy to deteriorate tangibly and fall into a mild recession, we pushed this call back towards year-end, when credit deterioration should weigh on growth. Inflation should remain sticky, at least in the near term and at a core level, but we expect some progressive normalisation, helped by below-par growth.










Europe: Overall growth will slow to below potential. Headline inflation will move lower faster than core inflation, while the latter will be sticky and constrain consumption, keeping the ECB in tightening mode.

England: We expect inflation to remain very high and above target, putting a lid on domestic demand and forcing the BoE to remain hawkish. This will imply very subdued growth in 2023-24 amid the non-negligible risk of a wage-price spiral.

Japan Accumulate Although business investments have proven resilient, we anticipate a moderation in H2 due to weakening global demand, with some potential re-acceleration in 2024. As household inflation expectations have been cooling.
Emerging markets Start Buying Stronger long-term growth opportunities are being offset by emerging markets’ idiosyncratic risks and highly cyclical nature. Exposure to slowing demand from developed market consumers remains a drag on earnings, but better relative growth is not discounted in valuations, in our view.



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